Pension reform makes saving for retirement more appealing

The Danish government and Dansk Folkeparti (the Danish People’s Party) have just reached an agreement regarding the second part of the pension reform which, together with the first part of the reform, is to ensure that it will be worthwhile for everyone to save up for retirement. PFA is pleased with the reform making pension saving more appealing for everyone, but points out that the reform will make the pension system more complex.

As a part of the tax agreement, the Danish government and Dansk Folkeparti have entered into an agreement on 6 February 2018 regarding the second part of the pension reform. The objective of the reform is to solve the interplay issues between public benefits and private pension plans and to make it more appealing for people in Denmark to save up for retirement. The first part of the reform took effect at the turn of the year and the new agreement means that DKK 5 billion per year will be earmarked for initiatives to increase the incentive for pension savings.

“We are pleased that the Danish government and Dansk Folkeparti have reached an agreement which, together with the first part of the pension reform, will make it more appealing for everyone to save up for retirement. It is very positive and much-needed, which we would like to acknowledge”, says Carsten Holdum, PFA’s consumer economist.

Tax deduction means automatic tax gain

Among other things, the agreement implies an extra tax deduction for pension payments and that the basis of the employment allowance will also include pension payments.

“The initiatives of the agreement reward the pension savers by giving them an extra tax gain, without having to actively do anything to get it. Together with the changes of the old age savings scheme, which were implemented with the first part of the pension reform, it will now be more advantageous for everyone to save up for retirement no matter where you are in life”, Carsten Holdum says.

However, he also notes that it is a very technical solution which comes with a number of tax rule changes.

“Unfortunately, the agreement takes us in a direction where the pension system is getting more complex, and we need the opposite. At the same time, it seems that the agreement will be quite narrow. This is unfortunate because the pension system needs stability and confidence that it will not be changed all the time. Therefore, we are still hoping for a broad compromise”, Carsten Holdum adds.

The agreement on the second part of the pension reform must be implemented in a bill before it can be adopted and effected. The first part of the pension reform was adopted before Christmas and took effect on 1 January 2018.