Luxembourg reforms state pension system

Luxembourg recently passed reforms to the state pension system. Key changes include an increase in the total social security pension contribution rate from 24% to 25.5%, effective 1 January 2026, and a gradual increase in the minimum contribution period required for early retirement at age 60, from 480 to 488 months, between 1 July 2026 and 2030.

Background

The bill proposing the reforms was passed by the Chamber of Deputies on 18 December 2025 and formally enacted into law on 19 December 2025.

National pension insurance is administered by the National Pension Insurance Fund (Caisse nationale d'assurance pension (opens a new window)) and provides benefits on a defined benefit basis, funded through a pay-as-you-go system. Coverage applies to private-sector employees and self-employed people.

Prior to 1 January 2026, employers, employees, and the government each contributed 8% of total salary (including benefits in kind and excluding overtime pay), for a total contribution rate of 24%. Pension contributions are calculated on earnings subject to a statutory minimum contribution base (EUR 2,703.74 per month in 2026) and a statutory maximum contribution base (EUR 13,518.68 per month in 2026). Contributions are still payable for employees earning less than the minimum contribution base, but those contributions are assessed at the minimum contribution base. Employers and employees do not make contributions on earnings above the maximum contribution base.

Key details

The following sets out major changes for employers to note:

Increase in social security pension contribution rate

From 1 January 2026, the total social security pension contribution rate increased by 1.5%, from 24% to 25.5%, with the increase split equally between the employer, employee and the government. The applicable contribution rates are now:

• Employer contribution: 8.5%

• Employee contribution: 8.5%

• Government contribution: 8.5%

The 25.5% total contribution rate will apply from 2026 through 2032.

Gradual increases in the minimum contribution period for early old-age pension at age 60

Previously, the minimum contribution period required to qualify for an early old-age pension at age 60 was 480 months of social security contributions. This period may include not only actual employment or self-employment contribution periods, but also certain recognized periods such as time off for study or training, sickness, childcare, and similar qualifying absences.

The minimum contribution period will increase gradually as follows:

The increase for 2026 will take effect from 1 July 2026. Subsequent increases are expected to apply from 1 January of the relevant year.

Change in recognition of study years

Previously, periods of study or vocational training could be credited towards the total social security contribution period only if undertaken between the ages of 18 and 27.

From 1 January 2026, up to nine years of study or vocational training undertaken after the age of 18 may be recognized, regardless of when they occur during an individual’s career. This change removes the upper age limit and enables recognition of study or training undertaken later in life.

New “progressive pension” option

A new “progressive pension” option is available from 1 January 2026. This mechanism allows employees who are eligible for an early old-age pension to reduce their working hours while receiving a partial pension, enabling a gradual transition into retirement until the legal retirement age of 65 is reached. Eligibility for an early old-age pension includes fulfilling the required minimum contribution period. Additional details on eligibility can be found on the National Pension Insurance Fund’s website here (opens a new window).

Employers will pay such employees a monthly allowance (calculated by the National Pension Insurance Fund) alongside salary and be fully reimbursed by the National Pension Insurance Fund. The reimbursement also includes the employer’s social security contributions on the allowance.

To qualify:

• The employee must meet the conditions for entitlement to an early old-age pension.

• The employee must have worked hours equivalent to at least 75% of a full-time position for the preceding three years.

• Working hours must be reduced by at least 25%, while maintaining a minimum of 16 hours per week.

• The arrangement requires the employer’s agreement and must be documented in an amendment to the employment contract.

Employer action: ACT

Employers should review and update their internal policies, practices and systems, where necessary, to reflect the changes.

With respect to the increased contribution rate, employers should budget for the higher costs and coordinate with payroll providers to ensure systems are correctly updated from 1 January 2026.

Employers may also wish to communicate these changes to employees, particularly those approaching early-retirement eligibility.

Please contact Ty Thurmond, VP, Senior Consultant, Global People Solutions at ty.thurmond@lockton.com (opens a new window), or your Lockton Consultant, if you wish to discuss these changes.

Further Information

A606 Law of 19 December 2025 | Official Journal of the Grand Duchy of Luxembourg (opens a new window)

Pension System Adjustments from 2026 | Ministry of Health and Social Security | The Luxembourg Government (opens a new window)