We'll give you a quick overview of the different kinds of pension saving plans.
Lifetime old-age pension (retirement annuity)
What is it?
A retirement annuity is a monthly, lifelong pension. It is paid out for the rest of your life, no matter how old you become. The size of the pension (the amount you receive) depends on how much you pay into it and how long you save.
When will I be paid?
Payments can begin no earlier than at your retirement age. There is no upper limit to how old you may be when you begin to receive payments.
Do I have to pay taxes on payments into or from my pension?
Payments into a lifelong pension are tax-deductible, and there is no limit to how much you can pay into your pension. You do have to pay ordinary income tax on regular pension payouts, but you don't have to pay a labour market contribution.
Instalment pension
The instalment pension is a monthly pension. It can be paid out over a period of 10 to 25 years. You can use a portion of your mandatory contribution toward an instalment pension, or you can pay into the plan yourself. You don't need to consider the payment period until you're ready to begin receiving your pension.
When will I be paid?
You can begin receiving payments no sooner than at your retirement age. The last instalment of an instalment pension must be paid out no later than 25 years after your retirement age. For example, if you receive your first instalment at age 68, your last instalment must be paid out by age 82.
Do I have to pay taxes on payments into or from my pension?
Payments into an instalment pension are tax-deductible. However, there is a limit to how much you can pay in. In 2016, the limit was 52,400 DKK. That means that additional payments beyond this amount are not tax-deductible. You do have to pay ordinary income tax on regular pension payouts, but you don't have to pay a labour market contribution.
Old-age insurance (old-age savings)
Old-age insurance plans replaced what was previously known as a "capital pension". The option to start a capital pension plan was discontinued at the end of 2012. Old-age insurance is a one-time payment you can receive when you retire.
When will I be paid?
You can receive this payment no earlier than at your retirement age, and no later than 15 years after your retirement age.
Do I have to pay taxes on payments into or from my pension?
Payments into old-age insurance are not tax-deductible. However, there are no taxes or fees to pay when you finally receive your payout. In 2016, the limit on payments into such a plan was 28,900 DKK.
You can combine the various types of pension. This means that you can save for both old-age insurance and a retirement annuity. That way, you can receive a one-time payment when you retire, plus a monthly pension payment for the rest of your life.
Getting an early start on pension savings — is there anything to it?
There's a reason that companies offering pension plans say "the sooner, the better". Here, we'll show you two examples of how paying into a retirement plan early will give you a better pension in the end.
Example 1
Let's suppose that you retire at the age of 68. When you're 58, you realize that your pension savings could be better than they are. So, you pay 30,000 DKK into your pension. When you retire at 68, that amount has grown to 40,453 DKK.
In contrast, if you pay 30,000 DKK into your pension plan at age 38 and then decide to retire at age 68, that amount will ultimately have grown to 92,670 DKK. This is the result of compound interest, and it gives you more money for your life as a pensioner.
Example 2
Let's suppose once again that you retire at the age of 68. The amount you'll receive each month as a pensioner depends on when you begin paying into your pension. In the overview, you can see the resulting monthly payments if you start paying into a plan at age 30, 40, or 50.
Would you like to learn more about pensions?
As a student, you probably don't think about pensions too much, but it's an important subject to consider. After all, your pension will one day replace your wages — it's the money that will ensure you're able to live the life you choose when you stop working. Would you like to learn more?
