Savings types

Get an overview of the different savings types

You can save for retirement in several ways and, typically, your employer has agreed with PFA how your money should be distributed. We recommend that you distribute your savings between old-age savings, instalment pension and life pension. This way, you will get as much flexibility as possible when your money is to be paid out. Here, you can get an overview of the advantages and disadvantages of the different savings types.

Life pension

A life pension ensures you a monthly payout from the day you retire and until you pass away. This gives you financial safety. You can pay as much as you like to a life pension. A life pension cannot be converted to other types of payout.

Advantages and disadvantages of life pension

Savings type Life pension
Payout Monthly payouts for as long as you live.
Maximum payment – per year Unlimited, however, there are specific rules for deductions on private contributions. Read more
Maximum deductible value Top-bracket tax 52.06 %
Taxation Income tax
Establishment or increase after age 62? Yes
Can be changed to -
Payouts begin, at the earliest* 60/5 years before state pension/3 years before state pension
Latest payout start Unlimited
Who receives the money if you pass away before retirement? The savings will go to your dependants provided that your plan includes full savings security.
Who receives the money if you pass away after retirement?

Most of your savings will go to your dependants provided that your plan includes financial security for dependants (annuity, up to 20 years). Otherwise, the savings will go to PFA's other customers.
Advantages
  • Money all through your life – no matter how long you live
  • Unlimited contributions
  • Tax deductions in the top-bracket tax
  • Protected against creditors until the time of payout.

Disadvantages

  • You cannot have all the money paid out as a lump sum
  • A lifelong life pension cannot be converted into other types of payout, whereas a temporary life pension can be converted into a lifelong life pension or an instalment pension
  • If you wish to cancel the pension before maturity, you must pay a flat-rate tax of 60 %
  • May be set off against the Danish state early retirement and the pension supplement of the Danish state pension.

* The earliest age the insured can start receiving payouts depends on the effective date of the policy and/or the insured's date of birth. 

 

Instalment pension

An instalment pension is the most common type of savings plan. The plan ensures you monthly payouts for a period between 10 and 30 years.
An instalment pension is flexible solution as it may be converted to a life pension. In 2024, the maximum payment is DKK 63,100.

Advantages and disadvantages of instalment pension

Savings type Instalment pension
Payout Monthly payouts for 10 to 30 years.
Maximum payment – per year DKK 63,100
Maximum deductible value Top-bracket tax 52.06 %
Taxation Income tax
Establishment or increase after age 62? Yes
Can be changed to Life pension
Payouts begin, at the earliest* 60/5 years before state pension/3 years before state pension
Latest payout start Earliest payout age + 30 years*
Who receives the money if you pass away before retirement? The savings will be paid out to your dependants.
Who receives the money if you pass away after retirement? The savings will be paid out to your dependants.
Advantages
  • Income for a long period of time
  • Tax deductions in the top-bracket tax
  • Protected against creditors until the time of payout.

Disadvantages

  • You cannot have all the money paid out as a lump sum
  • You are likely to outlive the payouts
  • Payments to the plan cannot exceed DKK 63,100 per year
  • If you wish to cancel the pension before maturity, you must pay a flat-rate tax of 60 %
  • May be set off against the Danish state early retirement and the pension supplement of the Danish state pension.

* The earliest age the insured can start receiving payouts depends on the effective date of the policy and/or the insured's date of birth. 

 

Endowment pension

Endowment pension has been replaced by the old-age savings plan. If you already have an endowment pension, the savings can be paid out as a lump sum, which may be distributed over several portions. You can also change it to regular payouts – either as an instalment pension or a life pension.

Advantages and disadvantages of endowment pension

Savings type Endowment pension
Payout Lump sum. Can, however, be split into several payouts.
Maximum payment – per year You can no longer make payments to an endowment pension.
Maximum deductible value -
Taxation 40 %
Establishment or increase after age 62? No
Can be changed to Instalment pension and life pension
Payouts begin, at the earliest* 60/5 years before state pension/3 years before state pension
Latest payout start Earliest payout age + 20 years*
Who receives the savings if you pass away before retirement? The savings will be paid out to your dependants.
Who receives the savings if you pass away after retirement? The savings will be paid out to your dependants.
Advantages
  • Large lump sum
  • You can change to regular payouts
  • A 40 % flat-rate tax instead of income tax
  • Is not set off against the pension supplement of the Danish state pension.

Disadvantages

  • Your savings may be spent too soon
  • You can no longer make payments to an endowment pension.

* The earliest age the insured can start receiving payouts depends on the effective date of the policy and/or the insured's date of birth. 

 

Old-age savings

The savings are paid out as a lump sum, which can be split into several payouts. If you have more than 7 years until the state pension age, you may pay up to DKK 9,100 annually. If you have less than 7 years, you may pay up to DKK 58,900. 

Advantages and disadvantages of old-age savings

Savings type Old-age savings
Payout Paid out as a lump sum once or in instalments. It can also be arranged to have the old-age savings paid out in regular instalments over a number of years.
Maximum payment – per year

If you are more than 7 years away from the Danish state pension, you may pay up to DKK 9,100.
If you are less than 7 years away from the Danish state pension, you may pay up to DKK 58,900.
Maximum deductible value Not deductible
Taxation Tax-free
Establishment or increase after age 62? Yes
Can be changed to -
Payouts begin, at the earliest* 60/5 years before state pension/3 years before state pension
Latest possible payout If the old-age savings are paid out in regular instalments, the final instalment must be made no later than 30 years after the earliest payout age*
Who receives the savings if you pass away before retirement? The savings will be paid out to your dependants.
Who receives the savings if you pass away after retirement? The savings will be paid out to your dependants.
Advantages
  • Large lump sum
  • Is not set off against the pension supplement of the Danish state pension

Disadvantages

  • When you make payments to an old-age savings plan, you will be liable to pay a 40 % tax penalty if you have received payouts from an instalment pension, a life pension or an index-linked plan in previous years.**

  • If you convert a tax-deductible pension plan into a plan without tax deductibility, you must change your preliminary income assessment. Otherwise, you will have to pay back taxes the following year.

* The earliest age the insured can start receiving payouts depends on the effective date of the policy and/or the insured's date of birth.

**This does not apply to payouts that began before 1 April 2018.

 

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You can always log on to My PFA (mitpfa.dk) and see how your savings are distributed.

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