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Which pension solution to choose when you're self-employed?
Are you self-employed in Luxembourg, live there and want to boost your retirement? Do you want to cover yourself and your loved ones against the risk of death or disability? In this article, our expert Bruno Mendes, Business Advisor Coordinator at Spuerkeess, explains why and how you can benefit from a highly advantageous tax framework. Happy reading!
Solutions to secure your retirement as a freelancer
1. Statutory pension (1st pillar)
When you are a worker, you are inevitably a taxpayer, which means that you are obliged to pay social security contributions, and this also applies to the self-employed. These contributions are then added together to calculate the statutory pension (1st pillar) from which the taxpayer will be able to benefit once they are entitled to a pension.
2. Supplementary pension scheme (2nd pillar)
The supplementary pension scheme for the self-employed, also known as the occupational pension plan, is part of the 2nd pillar and has been in existence since 2019, with supplementary pension contributions paid by the self-employed person.
It enables freelancers, self-employed professionals and company directors with self-employed status to build up additional capital for their retirement.
In addition, this pension scheme provides cover against the risks of death, disability and accident, while taking advantage of a favourable tax framework.
3. Individual savings in a private pension scheme (3rd pillar)
The private pension scheme (LIR 111bis) is an individual savings scheme taken out on the private initiative of the subscriber.
With S-Pension, you build up capital by investing in the Spuerkeess LUX-PENSION SICAV for your retirement, while benefiting from tax advantages from the outset.
Supplementary pension scheme: security, taxation and other benefits for the self-employed
Benefits at a glance
Opting for a supplementary pension scheme offers the self-employed many advantages, including:
- A supplementary income to ensure a comfortable and secure retirement.
- The premium paid is tax deductible as a special expense up to a maximum of 20% of net annual income. See example
- On maturity, the retirement benefit is tax free in Luxembourg.
- A cover for life risks: death, invalidity and accident. These premiums are tax deductible without limit, so you can protect your loved ones.
- The flexibility to adapt the investment method and amount every year.
- The scheme is not linked to a compulsory minimum duration (maturing at legal retirement age at the earliest).
Focus on taxation
Pension premiums are deductible as a special expense up to a maximum of 20% of net annual income. A flat-rate premium tax of 20.9% is deducted directly from the premium paid. In return, the benefits paid out are free of income tax in Luxembourg, with the exception of the deduction for the long-term care insurance contribution (currently[1] 1.4%).
Premiums to cover life risks (death, invalidity and accident) are tax deductible without limit!
You can choose the amount of the annual premium to be paid into your pension plan and define whether you wish:
- To make monthly, quarterly or annual payments,
- To adjust your pension contributions every year without penalty, depending on your situation and your means,
- To opt for a direct debit (compulsory if monthly).
At the end of the contract, or in the event of statutory retirement, the reserve acquired will be paid out in the form of a lump sum.
[1] on 31/07/2024
Eligibility for the supplementary pension scheme
Any resident who is gainfully self-employed in Luxembourg is eligible for the supplementary pension scheme. The activities concerned can therefore be many and varied:
- Liberal profession (doctor, dentist, psychologist, psychiatrist, physiotherapist, osteopath, veterinary surgeon, pharmacist, lawyer, notary, architect, etc.)
- Self-employed craftsman (building trade, baker, hairdresser, butcher, etc.)
- Self-employed retailer (salesperson, restaurant owner, café owner, etc.)
- Farmer
- Independent estate and insurance agent
- Director (fees)