Private pension
Tax-deductible premiums in pension insurance (art. 11bis LIR) can be invested either :
- with guaranteed capital ;
- in investment funds ;
- or by combining these two possibilities.
Moreover, tax legislation does not limit the number of contracts taken out (possibly together with your spouse or partner).
Even if the tax return (form 100 – taxation by assessment) only provides for 3 lines (for 3 contracts taken out), you could fully claim a number of contracts greater than 3 (possibly via an explanatory sheet annexed to your statement).
However, be sure to respect :
- the maximum tax ceiling. € 3,200/year for the sum of the premiums paid on pension contracts taken out in your name, respectively in the name of your spouse or partner ;
- the age at the end of the contract: between 60 and 75 years old ;
- the minimum duration of the contract : 10 years.
Life insurance with guaranteed capital at term :
It provides for capitalization of premiums paid at a guaranteed interest rate. This interest rate is set by the Commissariat aux Assurances (the insurance supervisory authority in Luxembourg) for all insurance companies operating in Luxembourg.
Declining in recent years, this rate stands at max. 0.75% gross per year since January 1, 2017 for contracts denominated in Euro. In addition, an annual non-guaranteed profit sharing may be paid. It will depend on the financial gains of the insurance company on the amounts invested (mainly in European bond assets). In practice, if interest rates go up in the future, it is very likely that the profit sharing of your contract will be revised upwards.
Life insurance linked to investment funds :
Even if this insurance does not provide such a guarantee, it offers you the prospect of a higher return in the long term depending on the stock markets.
Depending on the form of pension insurance offered by the insurance company, you can invest among :
- equity funds ;
- bond funds ;
- at least one monetary fund.
Without going into the details of the two legal formulas (stock or flow), the following investment rules apply :
- when signing your contract :
- the older you are, the more the proportion invested in equities will be reduced in favor of the bond and/or monetary part ;
- during your contract :
- the proportion invested in equities will be periodically arbitrated automatically in favor of that invested in bonds. The objective pursued is to reduce the volatility of your investment, in particular as you approach the end of your repo contract ;
- you will only be able to arbitrate your investments in favor of less risky assets. In this case, it will no longer be possible for you to return to riskier assets.
As you approach the end of your pension contract, you have the possibility of arbitrating all or part of your assets in the monetary fund in order to guarantee you all or part of your invested capital. But don’t do it too soon (compared to the end of your contract) because the return on this fund is very low or even close to 0% compared to the returns of the available funds and you will no longer have the possibility of returning to riskier assets before the end of your contract.
If you would like professional and independent advice on the various possible pension insurance solutions, contact us via our form