XP penalty

[Heavy]

It was 5 levels previously.

With Patch 0.9.0 it now is 10 levels for solo or if you are the highest levle player in a party.
Otherwise read below.

Here is the relevant section from the patch notes:

@EHG_Kain

• If you are playing alone or are the highest level party member, you will gain reduced XP from enemies if you are more than 10 levels below the zone’s level, gaining xp as if the zone was your level plus 10. If you are not the highest-level player, this threshold is reduced by the level disparity between you and the highest-level player (minimum of 2).
• A system with a similar end effect existed in 0.8.5, but the threshold was 5 levels and did not apply in campaign zones.
• If you are more than 5 levels below the expected level for the start of a chapter, quests in that chapter will award proportionately less xp based on your level.