Private pension savings in Denmark

John from Canada is working in Denmark for a middle-sized company, which does not cover his pension savings. As he is approaching his 40’s, he is wondering how he can start pension savings on his own in Denmark. John has the following questions with regards to pension in Denmark:

Let’s take a look at John’s 2d question “What options for pension savings do I have in Denmark?”:

PENSION IN DENMARK basically CONSISTS OF THE TWO PARTS:

  1. Public pension payments: Folkepension (public pension) and a number of different add-ons, which you can get if you fulfill certain conditions. Available to you when you reach your public pension age if you are entitled to it.
  2. Private pension payments – available to you if you have accumulated/invested for pension either through your work or on your own. You can start receiving the payments when you reach a certain age. As of 2019, it is public pension age minus 3 years. So if your public pension age is 68 y.o., then you can withdraw your private pension savings from 65 y.o.

You can’t do much to influence your public pension part, but the private pension savings are up to you to accumulate.

There are three ways to do it:

1⃣ Aldersopsparing – previously called capital pension. You can save up 5,200 DKK annually for this pension type (in 2019). You don’t receive tax benefits when you save the money, but then, when the time comes, you won’t need to pay any taxes on these savings. The advantage is that the profit from investments on this type of pension is taxed with 15.3% annually (which is lower than taxation on ordinary investments that are not bound to pension).

2⃣ Ratepension – a type of pension, where pension payments come in “rater”, i.e. in equal installments over a certain number of years, e.g. 10, 15 or 20 years. You can get tax benefits while saving for this pension type, and you will pay ordinary income tax once you get the pension payments in your old age. The clear advantage of this pension type is that it is inherited by your heirs in case of your death and it is relatively easy to transfer it to another pension fund, should this be necessary. OBS: Ratepension can at any time be transformed to livrente (the next and last pension type for private pension savings in Denmark)

3⃣ Livrente – a mix of pension savings and insurance. This last type of pension covers your old age totally, i.e. you will get equal installments for as long as you live. Thus, one who lives the longest life, wins:-) and the ones that die before they make use of all the savings, won’t discover their loss. So, it’s a win-win situation. As a base case, your children and other heirs won’t get these money in case you die before your pension age or before you spend all the money saved. This pension type is greatly supported by the Danish state and you can save and get tax benefits for an unlimited amount.

The combination of these pension types depends on your particular situation. 

Example: If you set 5,000 DKK aside for pension savings each month, the combination could be as follows:

60,000 DKK available for annual pension savings.

You can invest 5,200 DKK annually for aldersopsparing: Put this money into work as soon as possible at the beginning of the year.

The rest, i.e. 54,800 DKK can go to ratepension and the whole amount will be tax-deductible (your taxable income will be reduced with this amount).

Links to support the information in this article:

✅ Check your public pension age in Denmark: https://seniorhaandbogen.dk/pension/folkepension/pensionsalder/

✅ Check your personal pension status in Denmark: https://www.pensionsinfo.dk/Borgerservice/velkommen.html

✅ Skat/taxes on pension savings: https://skat.dk/skat.aspx?oid=2234742

 

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ElenaKabatchenko

Founder of Finance Guide Denmark – helping internationals in Denmark with the financial side of their integration

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