LUXEMBOURG- A decree by the Grand Duchy has spelled out the precise details of reform to Luxembourg’s private pensions industry in a move that is likely to see both banks and insurance companies roll out a raft of new products.

In January, parliament passed legislation designed to encourage the promotion of private pensions. When the law was introduced at the beginning of the year, the minutiae were unspecified and providers were obliged to wait for further details.

The decree has specified that the previous tax-exempt contribution limit of e1,200 will rise to between e1,500 and e3,200, depending on a policy holder's age. Until 40, policyholders can contribute e1,500 tax free, those aged 55 and over can enjoy the higher level of e3,200.

Luxembourg’s new law also enables policy holders to take up to half their final benefit in the form of a lump sum. Previously, they were obliged to take everything in an annuity, hence the new interest from the banking sector.

The decree from the Grand Duchy also halves the tax burden of the final retirement provision while the investment options open to policyholders are being extended from straightforward insurance products to unit-linked products and external pension funds.

Banks have been lining up to capitalise on the new legislation since its announcement but they will face stiff competition from the insurance companies.

Although policyholders are able, if they want, to take half their retirement in a lump sum, they are obliged to take at least half in an annuity. In other words, insurance companies are able to provide both whereas banks offering the new pension products will need to maintain relationships with insurance companies.

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