New rules applicable to early retirement

 New rules applicable to early retirement
20 Feb 2018


Dorothée David

A law, dated 30 November 2017, has modified the different early retirement schemes applicable in Luxembourg. The new provisions are designed to increase the employment of senior citizens and raise the effective retirement age, thus taking into account the demographic changes and recommendations introduced by the OECD. They have applied since 11 December 2017 and mainly concern the following points:

Removal of early retirement-solidarity (préretraite-solidarité) as of 1 July 2018: articles 581-1 to 581-9 of the Labour Code will be repealed as of 1 July 2018. As an exception, early retirement-solidarity continues to apply to businesses where it is provided for in the collective employment agreement entered into before 1 July 2018, for as long as the agreement is valid, as well as in businesses covered by an early retirement-solidarity agreement signed before 1 July 2018 with the Ministry, for a maximum duration of 2 years.

Common changes applicable to the early retirement-adjustment (préretraite-ajustement), early retirement for shift work (préretraite pour travail posté) and progressive early retirement (préretraite progressive”) schemes:

  • the benefit of early retirement is now conditional upon a minimum period of 5 years working for the company making the application (no minimum period required before the Law). As an exception, this minimum employment period is reduced to 1 year for the employees of a company that has been declared bankrupt or is going through court-supervised liquidation.
  • the early retirement compensation period is limited to 3 years, and comes to an end at the latest before the person in question has reached the age of 63. The early retirement compensation automatically stops on the day on which the person in question fulfils the qualifying conditions for receiving an early pension from the age of 63 (compared with the age of 60 before the Law).
  • the compensation period may be extended until the person in question reaches the age of 65 in certain conditions, which vary depending on the different early retirement schemes.
  • the calculation of the early retirement compensation is now based on an annual reference (annual average basic salary and variable income) instead of the last 3 months immediately before the person takes early retirement. Bonuses are taken into account up to the value of one twelfth of the average bonuses paid for the last 3 years.
  • temporary re-employment aid as well as lost income incurred in connection with partial unemployment, unemployment due to bad weather or accidental or technical unemployment are now also taken into account in the reference salary used to calculate the early retirement payment.

Each of the applicable early retirement schemes is also subject to more specific changes, including in particular the following:

  • the validity period for the early retirement-adjustment agreement is limited to 1 year, apart from for businesses that have agreed on a restructuring plan or a job maintenance plan, for which the duration of the agreement must not exceed that of the plan.
  • access to early retirement for shift work and night work is now also open to employees who can demonstrate 15 years of shift work or night work in the 25 years immediately leading up to their early retirement (only possible for employees who could demonstrate 20 years’ service before the Law).
  • the existence of a causal link between taking progressive early retirement and a new hiring is now no longer required by Law.