Mon 11 Dec 2017
News - Directors' Day 2017 - Occupational pensions for directors
Directors' Day 2017 - Occupational pensions for directors
Independent workers are to receive the same rights to tax breaks on a company pension as employees. With the advent of law 7119, independent directors and all other self-employed people will be able to deduct premiums worth up to 20% of their annual income from their tax base. Fernand Grulms managing director of the consultancy PECOMA explained.
A draft law is set to give independents the same rights as salaried employees as regards company pension tax breaks as of 2018. The maximum deductible on premiums paid would be 20% of annual income, up to a limit of five times the minimum wage. The maximum is currently about €24,000 per year, that is, for people earning upwards of €120,000.
Draft law 7119 is due to apply retroactively from 1st January 2018, even if the law is not passed by the end of 2017. Mr Grulms pointed out that there are still certain details to be agreed, such as the retirement age and if you can continue to contribute after 65. There won’t be a minimum duration but no early redemption. This move comes on top of the €3,200 per year which can be deducted for personal pensions. Incendentally, end benefits are paid tax-free in Luxembourg, as well as in countries such as Germany and Belgium.
Mr Grulms recommends that people make their own provision for their retirement, as the evidence points to an unsustainable public pension system. “The Luxembourg pension system is sustainable if we double the population every 25 years,” he warned. He said the current contribution rate of 24% (8% each from employees, employers and the state) is about half that required to make it sustainable. At the moment you can retire on a full pension at 60 if you have been affiliated for 40 years (this includes study and parental leave as well as working time), or at 57 years if you have contributed for 40 years. Work abroad is taken into account if it was in the EU or a country with which a pension treaty has been signed.
The government recently spoke about a €17bn surplus on the pension fund, but this is on total liabilities of around €400bn. “We will hit a wall, just we don’t know when,” said Mr Grulms, but on current trends the pension pot will be empty from 2036. “Yes you will get a pension, but how much, nobody knows,” he added.