Savings Types

Savings Types

You can save for retirement in several ways, and you need to consider both tax matters and how you want to receive payouts when you retire.

Get the full overview at My PFA

Make the most of your pension payments

When deciding on a savings type, you need to consider both tax matters and how you want to receive payouts when you retire.

We recommend that you pay the first DKK 54,700 of your annual payments to an instalment pension and the rest to a life pension. This way, you pay minimum taxes. In addition, an old age savings plan is a good supplement to your company pension plan.

Please note that the savings types you can choose from may have been fixed in the agreement between PFA and your employer, which may limit your options.

See the pros and cons of the different savings types and the applicable rules in the table below. The amounts and rates apply for 2018.

Overview of savings types

Savings type  Life pension Instalment pension Endowment pension Old age savings
Payout Monthly payouts for as long as you live Monthly payouts for 10 to 30 years Lump sum benefit. Can, however, be split into several payouts Lump sum benefit. Can, however, be split into several payouts
Maximum annual payment Unlimited DKK 54,700  You can no longer make payments to an endowment pension If you have more than 5 years until public old-age retirement, you may pay up to DKK 5,100

If you have less than 5 years until public old-age retirement, you may pay up to DKK 46,000
Maximum deductible value Highest tax bracket 52.7 % ** Highest tax bracket 52.7 % ** - Not deductible 
Taxation  Income tax  Income tax  40 % Tax-free
Establishment or increase after age 62 Yes Yes No Yes
Can be changed to - Life pension  Instalment pension and life pension  Instalment pension and life pension 
Earliest payout start* 60/5 years before public old-age retirement/3 years before public old-age retirement 60/5 years before public old-age retirement/3 years before public old-age retirement 60/5 years before public old-age retirement/3 years before public old-age retirement 60/5 years before public old-age retirement/3 years before public old-age retirement
Latest payout start No limit  Earliest payout age + 30 years
Earliest payout age + 20 years
Earliest payout age + 20 years

Who receives the money if you die before retirement? The savings will go to your dependants provided that your plan includes full savings security. The savings are paid out to your dependants The savings are paid out to your dependants The savings are paid out to your dependants
Who receives the money if you die after retirement? Most of your savings will go to your dependants provided that your plan includes financial security for dependants (annuity, up to 15 years). Otherwise, the savings will go to PFA's other customers The savings are paid out to your dependants The savings are paid out to your dependants The savings are paid out to your dependants
Pros
  • 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.
  • Money for a long period of time 
  • Tax deduction in the top-bracket tax  
  • Protected against creditors until the time of payout
  • Large lump sum benefit
  • 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 public old-age pension 
  • Large lump sum benefit
  • Is not set off against the the pension supplement of the Danish public old-age pension 

 

Cons

  •  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 the agreed date, you must pay a flat-rate tax of 60 %
  • May be set off against the Danish public early retirement pension and the pension supplement of the Danish public old-age pension
  • 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 54,700 a 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 public early retirement pension and the pension supplement of the Danish public old-age pension 
  • Your savings may be spent too soon
  • You can no longer make payments to an endowment pension 
  • 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
  • There will be a 40 per cent tax penalty if you make payments to an old age savings plan after you started to receive payouts from an instalment pension, a life pension or an index-linked plan

* The earliest age the insured can start receiving payouts depends on the pension plan’s  date of establishment and/or the insured's date of birth.

** The tax value is calculated for an average municipality with a total local municipal tax percentage amounting to 25.6 % in 2016 including church tax. The church tax amounts to 0.7 %.