Pension in Denmark is an important part of our lives already from the start of the labor market until we actually need it as an elderly person. Pension is a benefit that you can get paid when you reach a certain age – usually around 60 years and up – and that helps ensure a good standard of living when you are no longer an active part of the labor market.
This guide gives you a lot of useful knowledge about retirement. The guide covers information areas such as what pension is, the different types of pensions, including statutory pensions (public pension and early retirement pension), labor market pensions (collective-based pensions, company pensions and civil servant pensions), how pension payments are made, when you can apply for and receive pensions and much more.
What is Retirement?
Table of Contents
- 1 What is retirement?
- 2 When can I retire?
- 3 What types of pension are there?
- 4 The law-based pensions
- 5 Early retirement pension is a public benefit paid by the state
- 6 Who can receive a state pension?
- 7 How much can I get in state pension?
- 8 When can I apply for a state pension?
- 9 How is a state pension paid out?
- 10 Labor market pensions
- 11 Life or health insurance for your pension
- 12 Agreement-based labor market pensions
- 13 Company pensions
- 14 Officials’ pensions
- 15 How is the payment of the labor market pension?
- 16 Age insurance
- 17 Individual pension scheme
Retirement is a term used to explain the benefit you can get paid monthly or as a lump sum when you choose to retire from the labor market. It is thus the intention that you should be able to live off your pension savings or the public old-age pension when you are no longer active in the labor market.
When can I Retire?
Depending on your age, there may be differences between when you need to retire exactly, and when you must start getting your pension paid at the latest. In the case of a pension in general, you will not be able to retire at the earliest when you are 60 years old. The rules also state that you need to start receiving your pension no later than 75 years old. The rules are a bit different in connection with state pension.
It is your specific date of birth that determines when you can precisely begin your retirement payment. It is also worth noting that retirement age may change in connection with political decisions that seek to adjust the retirement age to the increasing life expectancy in Denmark.
What Types of Pension are There?
There are several different types of retirement, so learning how to distinguish between them can be a good idea. Overall, three different types of pension can be distinguished, which you can receive from different sources here in Denmark:
• The law-based pensions
• Labor market pensions
• Individual pension scheme
The Law-Based Pensions
The statutory pensions are pensions that are ordered by the legislation in Denmark, which is why it is the government that is responsible for administration and payment of these. This category consists primarily of old-age pension and early retirement pension.
National pension is a public benefit paid by the state as a result of age. As a rule, the state pension can be paid to all Danish citizens, or citizens who have lived in Denmark for a minimum of 10 years, once they have reached the national pension age. The retirement age is currently around 65, but depending on your date of birth, there may be a difference when you need to get it paid out.
Currently, there is also a tendency for the national pension age to increase by one year for every approx. fifth year, as it is continuously adapted to the Danes average life expectancy. How much you can get in old-age pension is determined as a rule by how much you own and how much value your labor market pension scheme and / or individual pension scheme has. The rule of thumb says, the more you own and have saved up for old age, the less an amount you will be able to get paid in state pension by the state.
Early Retirement Pension is a Public Benefit Paid by the State
Early retirement pension is also a public benefit paid by the state, but this type of pension is typically given earlier than other forms of pension, and is granted according to very strict criteria as a result of incapacity for work due, for example, to invalidity or other illness. For the same reason, it was formerly referred to as an invalidity pension. It is also given to people who are never expected to be able to perform a normal job.
The statutory pensions also include a pension scheme in the form of ATP, which is something the majority of all employees pay through their monthly salary. This type of pension scheme can be disbursed in different ways when you are 60 years old.
Who can Receive a State Pension?
As it is at present, you can receive state pension when you are between 65 and 68 years of age, depending on when you were born. In addition to having a certain age, you also have to fulfill three conditions in order to receive a state pension. The three conditions are:
• You must be a Danish citizen
• Have a permanent residence in Denmark
• Have lived in Denmark for at least three years from the age of 15 until you reach retirement age.
How Much can I get in State Pension?
The public old-age pension consists for the most part of a basic amount and a pension supplement. While the basic amount is the same regardless of whether you are single or married / cohabiting, the pension supplement is larger for single people.
The following rates are from 2016/2017 and show the state pension per person. month in DKK before tax. Regardless of whether you are single or married / cohabiting, you can get a basic amount of between 6,063 and 6160 DKK per month. If you agree, you can get a pension supplement of between DKK 6,399 and 6,551 per month, while you as a married / cohabiting partner can receive a pension supplement of between DKK 3,136 and 3,223 per month. This means that single people can receive a total amount of between DKK 12,462 and DKK 12,711 in public pension per month, while married / cohabiting couples can receive a total amount of DKK 9,199 and 9,383 in public pension per month.
If you have an income next to your old-age pension, this may well affect your basic amount, which will usually be reduced. Examples of other income are wage income, unemployment benefits, fees, income from own company, where you actively participate in the operation of this, meeting diets and the like. Please note, however, that labor market contributions are not included in your personal income, while the income of any spouse or cohabitant does not affect the size of your basic pension.
When can I Apply for a State Pension?
National pension is something you have to make sure to apply for, as it is not automatically paid to eligible citizens. When you have to apply for a state pension, you must do so no later than the last day of the month in which you turn 65. If you search later, you can only get public pension from the 1st of the month after you have applied. This means that if you, for example, have a birthday on October 6 and search on October 23, you will receive a state pension from November. If, on the other hand, you first apply for November 1, you will lose a full month’s pension, since you will be able to receive public old-age pension from December.
How is the Payment of a State Pension?
Old-age pension is paid backwards, ie the amount is transferred to your NEM account on the last banking day of the month. If you have received a state pension before February 1, 1999, your national pension will, however, be prepaid instead.
The second type of pension is called labor market pensions. Most Danes today have a pension scheme in connection with their employment. In connection with a labor market pension, both the employer and the employee each pay a share to a pension scheme for the given employee.
The employee’s share is taken from the salary before tax is deducted, so you will always have to pay tax on the amount that you get paid when you retire one day. In most cases, the pension will constitute a fixed percentage of your salary. However, if you are an official, you do not have to pay for your pension as you instead earn the right to it.
Life or Health Insurance for your Pension
Typically, there will also be a form of life or health insurance for your pension, which can be paid in case of death or serious illness before you reach your retirement age. If you do not already have a pension scheme with your employer, it is a good idea to get started with one. The faster you get started with your retirement savings, the more you can save up for your old age.
There are several different types of labor market pensions, each of which can be paid out in different ways. Overall, the labor market pensions can be divided into three different categories:
• Agreement-based labor market pension (agreed through an agreement)
• Company pension (agreed between an employer and a pension company)
• Civil servant’s pension (for government officials and officials employed in regions and municipalities)
Agreement based Labor Market Pensions
Agreement-based labor market pensions are the type of pension that accounts for the majority of the labor market pensions. This type of pension applies to a group of employees who usually have the same educational or professional affiliation irrespective of which company they are employed in. Here, the employee organizations and the employers agree in agreement with pay and pension in collective agreements that apply to all employees within specific areas. This type of pension is often lifelong, which means that you will receive money from retirement until the day you die.
Company pensions typically include employees in a particular company. Here the employer can freely choose which pension company is to be used for the administration of the pension schemes in the company. This type of pension is tied to the agreements that are concluded between the employer and the company’s employees in relation to how the pension scheme must be composed, and what it must cover.
Officials’ pensions are strongly linked to employment. The size of your pension here depends on how long you have worked as an official. Depending on how many years you have been employed as an official, you will earn the right to the pension.
This type of labor market pension follows the official’s pension law if you are employed as an official in the state. However, the rules for civil servants employed in regions and municipalities largely correspond to the civil servant’s pension law in substance. Officials ‘pensions are financed through the Finance Act or via the municipalities / regions’ budgets . Payment of civil servant’s pension is life-long.
How is the payment of the labor market pension?
As labor market pensions can be built up in many different ways, one typically distinguishes between four different types in relation to disbursement of labor market pensions. The four types are:
• Annuity / old-age pension
• Capital pension
• Age insurance / retirement savings
Annuity / retirement
Annuity is something that is usually lifelong. However, it can also be paid over at least ten years, by which it is instead called a discontinuing annuity. It doesn’t matter how old you are when you want to create an annuity; You can do that no matter how old you are. As a rule, you are told that the annuity can be paid no earlier than five years before you reach your retirement age. All annuity payments are taxable.
An installment pension can give you annual payments for 10-25 years. Typically, you will not start paying out an installment pension at the earliest five years before and no later than ten years after you have reached your retirement age. Payments by the rate pension are also taxable and you can easily choose to convert this type of pension to a lifetime annuity at a later date
With a capital pension you get paid it all as a lump sum. You can get it paid out at the earliest five years before and no later than ten years after you have reached your retirement age. These payments are taxable at 40%. You can always easily choose to reschedule your capital pension to either an annuity or rate pension.
In the same way as with a capital pension, an age insurance is paid out as a lump sum. This type of pension works largely in the same way as a capital pension, but they are different on the point that the tax pays on payment and thus not on the payment, which is thus tax-free. Age insurance can also be paid at the earliest five years before and no later than ten years after you have reached your retirement age. This pension scheme is called retirement savings if it is created in a bank and age insurance if it is created with a pension company.
Individual Pension Scheme
The last type of pension is called the individual pension scheme. An individual pension scheme is a type of pension that you have to make sure you pay for. There are several different types of individual pension schemes, where you can usually choose between payment as a lump sum or in fixed monthly installments. It is a matter of taste whether you want an individual pension scheme or not, and it depends, among other things, on how much money you want to have available to live for when you become a pensioner.
Many self-employed people choose to set up an individual pension scheme, as you as a self-employed only have the right to state pension and ATP Livslang Pension. This means that the self-employed do not have a labor market pension, which is why it is not automatically saved up for a pension.
You can therefore, as an independent, risk experiencing a big difference between what you earn while you work as an independent and what you receive when you have become a pensioner. If you as a self-employed therefore do not believe that the state pension and ATP Livslang Pension are not enough to give you, the standard of living you want, then it may be quite relevant to create an individual pension scheme.
In the same way as with the labor market pensions, you can also get various forms of life and health insurance associated with your pension scheme. In this way you ensure both yourself and your family if you have to tragically die or become seriously ill before you can get your pension paid.