Pension

Pension savings in Denmark: how to save up enough for retirement

If you pay too little into your pension, your standard of living will drop significantly later in life. Find out what your pension savings options are and how much you need to save up for a comfortable life in retirement.

Pension in Denmark for internationals

This is a general guide to the Danish pension system to give you an overview of pension types and retirement planning. As an expat, however, your situation may differ from that of Danish citizens in several ways: For instance, your pension plan should take into account whether you have worked in another country than Denmark or plan to leave Denmark at some point – and whether you are from an EU/EEA country or not.

As a trade union, IDA does not advise on pensions. If you have questions about your own pension savings, you can:

Start thinking about your pension early on

Thinking about your finances in retirement may seem irrelevant if you're many years away from the end of your working years.

But if you don't make sure you pay enough into your pension during your working life, your standard of living will drop significantly when you retire.

That's why it's important that you familiarise yourself with your pension savings options and make an active choice - especially if you're self-employed or employed in the private sector, where there's a big difference in how much companies contribute to pensions.

It's also more fun to save earlier in your working life than at the end, because with compound interest, your money and thus your pension savings will grow on their own.

What types of pensions are there?

State pension: A right for (almost) everyone

As an employee in the Danish labour market, you are entitled to a state pension (folkepension) when you reach the state pension age of 67 if you are a Danish citizen or meet one of a number of requirements.

The state pension is so low that you will probably have a significantly lower standard of living unless you also have private pension savings.

Learn more about state pension at lifeindenmark.dk 

ATP supplementary labour market pension: A statutory pension scheme

ATP or Danish supplementary labour market pension is a statutory pension scheme that almost everyone in Denmark pays into. You can only receive your ATP pension once you reach the state retirement age, and it is automatically paid into your NemKonto.

You can read more about ATP and see how much you have paid in and can expect to receive in pension at borger.dk.

Read more about ATP at borger.dk

Labour market pension funds: Linked to your work

Labour market or occupational pension funds are the main source of income for most pensioners.

This pension type is structured so that both you and your employer pay a fixed amount or a percentage of your salary into it.

If you have a collective agreement, you can see how much your employer contributes to your pension in it. If you don't have a collective agreement, you can see it in your employment contract or the staff handbook at your workplace.

Instalment pension: Attractive if you receive a high salary

You can set up an instalment pension (ratepension) with a bank or pension company. You can choose between having your employer-paid pension contributions paid into it or you can pay into it alongside you occupational pension contributions.

The money is paid out to you in instalments over 10-30 years from the pension payout age. When you can receive your instalment pension depends on when you started paying into it.

  • Annuity pension created before 1 May 2007: Can be paid out from the age of 60
  • Annuity pension created after 1 January 2018: Can be paid out at the earliest 3 years before retirement age

An instalment pension can be an advantage if you have to pay top tax (topskat) because you get a deduction from your contributions. However, not that you can only access the money you contribute when you retire.

If you are considering starting an instalment pension, you can contact your bank or pension company for advice.

Annuity: A cross between a pension and insurance

The annuity (livrente) is a kind of insurance where you ensure that you receive the same payout every year for the rest of your life, no matter how old you get.

In this way, it differs from a pension scheme, where you don't know how many years the amount will last.

In this way, the annuity gives you greater financial security - on the other hand, any remaining savings will not be paid out to your heirs if you pass away at an early age.

If you are considering an annuity, you can contact your pension company for advice.

Retirement insurance/retirement savings: No tax when you retire

A retirement insurance or retirement savings is a pension scheme where you receive the full amount without being taxed or deducted from your state pension or other social benefits when you retire. On the other hand, you don't get any deductions when you make regular contributions to your retirement savings.

You can find out how much you can contribute to your retirement insurance/retirement savings without having to pay a tax at skat.dk.

Read more at skat.dk 

Spouse pension, cohabitant pension and children's pension: Take care of your family

IDA recommends that you investigate whether it is possible for your spouse/cohabitant and your children to be added as beneficiaries in your pension scheme. This means that they will receive your pension funds in the event of your death.

Your pension fund can tell you more about the options for spouse, partner and children's pensions.

Can I choose my own pension fund?

Which labour market pension scheme you have depends on your employer, so you cannot choose it yourself. You can find out which pension fund your employer works with in your collective agreement, staff handbook or employment contract.

If you want to take out a private pension scheme, you can choose the pension fund yourself.

Can I switch pension funds?

You can only transfer a labour market pension if you change jobs. However, you are not free to do so if you work in the public sector and are employed under a collective agreement.

Private pension savings, on the other hand, you can move whenever you want.

It's complicated to assess whether it's financially worthwhile to pool your pension savings in one place. Here you need to consider:

  • How much will you have to pay in fees to move your pension savings?
  • Will you save money on administration costs by having your pension savings in one place instead of several?
  • Could moving your pension to a different pension provider affect the return on your pension?
  • Can you opt for the necessary insurances with the new pension provider?

If you want to move your pension savings, you need to contact the pension company you want to move to.

How much income will you need when you retire?

A good rule of thumb is that to aim for a coverage minimum 80 per cent. This means that you will receive 80 per cent of your previous salary when you retire.

The recommendation is based on the fact that you will have less need to save as you get older, but you will still have mortgage, car and other expenses.

Unfortunately, 6 out of 10 IDA members have a coverage of below 70 per cent, which means they will experience a significant drop in their standard of living when they retire.

With most pension funds, you can log in and see your current coverage, or you can contact them to find out more.

How much should I save from my salary?

IDA recommends that you contribute a minimum of 10 per cent and an average of 16 per cent of your salary to your pension over your entire working life.

Is it important to contribute to your pension as a recent graduate?

It can be difficult to contribute enough to your pension in the early part of your working life because you also have many other expenses - such as buying a home.

But if you are able do so, it may actually pay off to contribute more of your salary in the early part of your working life. This is because your contributions are invested by your pension company, and the longer you have savings, the more they increase in value.

For example, if you have pension assets of half a million DKK and they are invested for 40 years instead of 30 years, you will end up with a return that is almost DKK420,000 higher.

Can I negotiate for more in my pension?

Pension is also salary, and you should be aware of this when signing an employment contract. Therefore, you should not only negotiate a good salary, but a good overall salary package.

Read how to prepare for the salary negotiation

Get a review of your contract

Am I insured through my pension?

Whether you have a labour market pension or a company pension, it will usually be linked to a number of insurances. Typically, these will include:

  • Serious illness: You will receive a lump sum payment if you become seriously ill. However, you should be aware that you are not insured against all illnesses.
  • Loss of working capacity: You will receive a monthly payment if you suffer an illness or accident that prevents you from working to the same extent as before.
  • Death: Your immediate family will receive either a lump sum or a monthly payment if you die.

If you want to see what insurances you have through your pension company or want to purchase other insurances, contact your pension company.

What should I be aware of as a public sector employee?

As a public sector employee, you can either choose to receive a payout of the part of your pension contribution that exceeds 15 per cent or you can deposit it in a special savings account. The percentage varies depending on whether you are employed by the state, a region or a municipality:

  • State employees: Can receive 3.07 per cent
  • Regional employees: Can receive 5.57 per cent
  • Municipal employees: Can receive 6 per cent

Unless you want to take the opportunity to invest the money in a special savings account or need it now, for example when buying a house, you should consider leaving it to allow your pension to increase in value and maintain a higher standard of living after you retire.

What do I need to pay special attention to as a woman when it comes to my pension?

Female IDA members are better at saving for their pension than male IDA members in the sense that their coverage is higher. However, they have smaller pension wealth, which is due to several factors:

  • Women's starting salaries are often lower
  • Women are more likely to work in low-wage industries
  • Women have more breaks in their working lives, for example during maternity leave
  • Women choose a lower risk profile for their investments

IDA works to change the structural reasons why women earn less and build a smaller pension, for example by working for pay transparency and increased parental leave for men.

As an individual, you may want to consider switching jobs, as this is typically where you can secure the biggest pay rises.

How to secure a pay rise when changing jobs

You may also want to consider increasing the risk profile of your pension savings, as this will historically mean that they will increase in value.

Contact your pension provider for advice on the risk profile of your investments.

Adjust your pension regularly

Your needs change as your life evolves. That's why it's important that you regularly consider whether you need to adjust your pension savings to suit your life situation.

If there are significant changes in your life, you should talk to your pension company.

Enrol your relatives in a pension scheme

Regardless of your pension savings, you should always consider who should receive the pension in the event of your death.

It is important that you enrol the people you wish to benefit in the pension scheme, as it is not sufficient that they are beneficiaries in a will.

Recommended pension and unemployment insurance funds

IDA recommends that you establish pension savings with ISP Pension or P+. To go on early retirement, you must be a member of an unemployment insurance fund. Here IDA recommends the Akademikernes A-kasse.

Get an overview of your pension

At pensionsinfo.dk you can get a complete overview of your pension and get an overview of what you will receive when you retire.