Focus on the Pension Savings Plan

Karen has been looking after her savings since her first job in Luxembourg. "I was 23, single and looking for a way to reduce my tax bill. My insurer advised me to start with a Pension Savings Plan. Firstly, because that's the most tax-efficient savings plan and, secondly, because the earlier you start, the larger the capital at the end.”

What is the Pension Savings Plan or PER?

The PER is a savings product specifically designed to anticipate the loss of income on retirement. It offers tax breaks to encourage long-term savings (minimum 10-year policy). Up to €3,200 per person per year can be deducted from the tax base (the LIR 111 bis law). The amount of your savings will be available after a minimum of 10 years and on your 60th birthday at the earliest.

What are the advantages?

• The main advantage of the pension savings plan is that the contributions paid are tax-deductible for the duration of the savings period (up to €3,200 per person per year).
• The money saved can be paid out in the form of a lump sum (in full), a life annuity (fixed amount each month), programmed annual surrenders or a combination of the three.
• Withdrawals will then be subject to income tax, but at a reduced rate (since the taxpayer will be taxed at a lower rate than the amount of their pension).
  

What are the limits?

To be tax deductible, the retirement savings plan must have been held for at least 10 years and you must have reached the age of 60. (It is always possible to recover your capital before maturity, but there are tax implications. In the event of financial difficulties, it is always better to simply stop paying premiums without terminating the policy).

Focus on life insurance

Lucile has chosen life insurance to prepare for her retirement. Her bank advised her to take out a Pension Savings Plan, but this wasn’t what she was looking for. "I opted for life insurance because I didn't want my capital to be tied up until I was 60. I prefer having this money available as my needs change".

Thomas has also opted for life insurance. "I'm more of an independent person. I like to be able to choose the most profitable funds and also to be able to vary the amounts paid in".

What is life insurance?

Life insurance is a savings and investment product that can be used for a variety of purposes: building up capital, preparing for retirement, protecting loved ones in the event of death or passing on assets.

The advantages of a life insurance policy

• You have a wider choice of investments. You decide what level of risk you wish to take in order to make your money work for you.
• There is no maximum payment limit for life insurance in Luxembourg.
• Life insurance offers greater flexibility when it comes to withdrawing funds: you can make (full or partial) surrenders at any time. The capital you stand to recover is determined by the financial markets.
  

The limits of life insurance

Life insurance remains a risky investment for unit-linked policies, due to the volatility of the markets. But the euro fund is more secure.

Some life insurance products are also tax-deductible, but less so than the Pension Savings Plan (up to €672 per person per year).

How do I choose between a Pension Savings Plan and life insurance?

No need to choose! These two savings products complement each other. It is even advisable to diversify your investments.  Our advice: start with a retirement savings plan to take advantage of the highest tax deduction and the cumulative effect of long-term savings. Then, if you can afford it, top it up with a life insurance policy to make your money work for you while remaining available in case of need.