Luxembourg government proposes tax incentive for delaying retirement

The government has proposed a new incentive for future pensioners: postponing early retirement to earn more money. Under the plan, individuals would be financially rewarded through a tax allowance if they choose to work beyond the early retirement age.

Among the pension reform measures announced on Wednesday, this initiative aims to "incentivise" workers to delay drawing their pension, which they are eligible to receive from age 60. The goal is to align the actual retirement age more closely with the legal age.

To encourage this, the government plans to introduce a tax allowance of €750 per month, designed to significantly reduce tax liability for those who continue working. This measure is expected to proportionally benefit low-income earners the most.

For example, a person in tax class 1 with an annual income of €40,000 would see a tax reduction of approximately €2,200 per year. The savings would be around €1,600 for tax class 1a and €900 for tax class 2.

Source: Ministry of Finance
 
A complementary measure is the introduction of phased retirement, which aims to keep eligible individuals in the workforce longer by allowing them to work part-time while receiving half of their pension without financial penalty. Minister of Social Security Martine Deprez confirmed to RTL that individuals opting for this phased approach would also be eligible for the new tax allowance.

Minister Deprez expressed confidence that the necessary draft legislation would successfully pass through the Council of State and the Chamber of Deputies in time to take effect on 1 January 2026.

"We are starting to draft the legislation today," she stated, noting that the government already had "a fair idea of where this was heading" as consultations are underway. "That is why I believe, and I am confident, that we will have everything in place for 1 January 2026," Deprez said.