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Retirement in Denmark: The pensions system explained

Denmark has various different types of pension, including an obligatory state pension and private options.

If you plan to spend most of your working life in Denmark, it pays to plan your pension form an early stage.
If you plan to spend most of your working life in Denmark, it pays to plan your pension form an early stage. Photo by Katarzyna Grabowska on Unsplash

If you work for a company in Denmark, you may already be on a private plan provided by your employer. You could also be paying directly into a labour market pension – contributions for this are shown on your payslip.

Meanwhile, the Danish state provides a pension to its residents, which is not related to employment.

The Danish pension system is based around three main types. By logging into Pensionsinfo using your secure login (NemId at the time of writing, soon to be replaced by MitID), you can easily check the status of all you pensions.

State sponsored pension (folkepension)

The folkepension is state-provided and not related to your employment. 

To qualify for the basic state-sponsored folkepension, you must have a permanent address in Denmark, have live in Denmark for at least three years between your 15th birthday and retirement age, and be a Danish citizen.

If you are not a Danish citizen, however, you still qualify for this pension if you have lived in Denmark for at least 10 years between the age of 15 and retirement age. Citizens of EU and EEA countries and Switzerland, as well as the United Kingdom, qualify without Danish citizenship, as do some refugees.

If you have lived and worked abroad, you can still qualify for the Danish pension, but the amount you will receive is affected by factors including how many years you worked abroad and how many years you have lived in Denmark. If you are entitled to state pensions from other countries, the periods for which you qualify for the foreign pension will not be eligible for the Danish pension.

Because of a 2017 law change, the age at which you can retire and take out a folkepension depends on when you were born, with the retirement age scheduled to increase incrementally in coming years.

People born after 1966 will be able to retire when they are 69 years old, while those born before 1954 can retire aged 65.

You can see the relevant breakdown of retirement ages here.

Denmark also allows you to delay withdrawing your pension. This enables you to earn a venteprocent or ‘waiting percentage’, increasing the monthly payout when you do withdraw it. You apply for this via the borger.dk website.

The state pension consists of a basic element (grundbeløb), which everybody gets, and a supplement (pensionstillæg), which is adjusted according to whether you live alone or with a spouse or partner.

The state pension can also be adjusted downwards if income from the two other types of pension is higher.

ATP (Arbejdsmarkedets Tillægspension)

ATP pensions are a supplementary labour market pension scheme which nearly everyone in Denmark pays into. Deductions are automatically taken out of your paycheck – you can see them on your pay slips. 

You only pay a third of your ATP pension contribution while working – you employer pays the other two thirds.

You can read in detail (in Danish) about tariffs, deductions and other factors which determine the ATP pension payout here.

READ ALSO: EXPLAINED: How to understand your Danish payslip

Your ATP pension will be automatically paid into your current account or NemKonto when you reach retirement age. The amount you receive depends on how much you have paid in through the course of your working life, and also when you paid it – earlier deposits result in higher pension payouts.

You can check how much ATP pension you can expect to receive at any time by logging into to your account via borger.dk.

Private or individual pension

Anyone in Denmark can join a private pension scheme, and if your company offers a private pension programme, then you will also see line items on your pay slips for employer and employee contributions. 

There are a range of different companies and pension options which you can choose to pay into individually, and you should carefully consider which best suits you.

For those discussing private options with an employer, you and your advisor will consider personal and family situation and how comfortable you are with the various options before making a final decision.

If you think that you will leave Denmark before you retire, you should mention this to your pension advisor to discuss your options. You will generally be able to take the pension with you, but you will have to pay high taxes if you take the money before retirement age.

Source: borger.dk

READ ALSO: Feriepenge: Denmark’s vacation pay rules explained

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For members

EUROPEAN UNION

Pensions in the EU: What you need to know if you’re moving country

Have you ever wondered what to do with your private pension plan when moving to another European country?

Pensions in the EU: What you need to know if you're moving country

This question will probably have caused some headaches. Fortunately a new private pension product meant to make things easier should soon become available under a new EU regulation that came into effect this week. 

The new pan-European personal pension product (PEPP) will allow savers to take their private pension with them if they move within the European Union.

EU rules so far allowed the aggregation of state pensions and the possibility to carry across borders occupational pensions, which are paid by employers. But the market of private pensions remained fragmented.

The new product is expected to benefit especially young people, who tend to move more frequently across borders, and the self-employed, who might not be covered by other pension schemes. 

According to a survey conducted in 16 countries by Insurance Europe, the organisation representing insurers in Brussels, 38 percent of Europeans do not save for retirement, with a proportion as high as 60 percent in Finland, 57 percent in Spain, 56 percent in France and 55 percent in Italy. 

The groups least likely to have a pension plan are women (42% versus 34% of men), unemployed people (67%), self-employed and part-time workers in the private sector (38%), divorced and singles (44% and 43% respectively), and 18-35 year olds (40%).

“As a complement to public pensions, PEPP caters for the needs of today’s younger generation and allows people to better plan and make provisions for the future,” EU Commissioner for Financial Services Mairead McGuinness said on March 22nd, when new EU rules came into effect. 

The scheme will also allow savers to sign up to a personal pension plan offered by a provider based in another EU country.

Who can sign up?

Under the EU regulation, anyone can sign up to a pan-European personal pension, regardless of their nationality or employment status. 

The scheme is open to people who are employed part-time or full-time, self-employed, in any form of “modern employment”, unemployed or in education. 

The condition is that they are resident in a country of the European Union, Norway, Iceland or Liechtenstein (the European Economic Area). The PEPP will not be available outside these countries, for instance in Switzerland. 

How does it work?

PEPP providers can offer a maximum of six investment options, including a basic one that is low-risk and safeguards the amount invested. The basic PEPP is the default option. Its fees are capped at 1 percent of the accumulated capital per year.

People who move to another EU country can continue to contribute to the same PEPP. Whenever a consumer changes the country of residence, the provider will open a new sub-account for that country. If the provider cannot offer such option, savers have the right to switch provider free of charge.  

As pension products are taxed differently in each state, the applicable taxation will be that of the country of residence and possible tax incentives will only apply to the relevant sub-account. 

Savers who move residence outside the EU cannot continue saving on their PEPP, but they can resume contributions if they return. They would also need to ask advice about the consequences of the move on the way their savings are taxed. 

Pensions can then be paid out in a different location from where the product was purchased. 

Where to start?

Pan-European personal pension products can be offered by authorised banks, insurance companies, pension funds and wealth management firms. 

They are regulated products that can be sold to consumers only after being approved by supervisory authorities. 

As the legislation came into effect this week, only now eligible providers can submit the application for the authorisation of their products. National authorities have then three months to make a decision. So it will still take some time before PEPPs become available on the market. 

When this will happen, the products and their features will be listed in the public register of the European Insurance and Occupational Pensions Authority (EIOPA). 

For more information:

https://www.eiopa.europa.eu/browse/regulation-and-policy/pan-european-personal-pension-product-pepp/consumer-oriented-faqs-pan_en 

https://www.eiopa.europa.eu/browse/regulation-and-policy/pan-european-personal-pension-product-pepp_en 

This article is published in cooperation with Europe Street News, a news outlet about citizens’ rights in the EU and the UK. 

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