The new lump-sum pension type introduced by the Danish government in 2012, which requires tax to be paid on contributions rather than payouts, has only had a low level of take-up among Danes so far, according to an analysis from statutory pensions institution ATP.
The new old-age pension – or alderspension – effectively replaced the lump-sum pension (kapitalpension) when the government made kapitalpension contributions non-tax deductible.
Savers could instead open an alderspension for the first time in 2013, on which they pay a lower rate of tax, but in advance on contributions rather than on the later lump sum paid out when the plan matures.
In its analysis, ATP said: “The new old-age pension did not take over in any way from the place where the kapitalpension finished.”
The new savings option could hardly be described as a fiasco, it said, but added that a potential breakthrough was slow in coming.
Contributions to the new alderspension totalled DKK1.7bn (€228m) in 2013 compared with the DKK17.5bn that had been saved in kapitalpension products the year before, ATP said.
Taking account of the tax differences between the two products, the total contributions to the alderspension last year corresponded to a DKK2.7bn inflow to kapitalpension products.
“So alderspension savings have only replaced savings in kapitalpension products to a very limited extent,” ATP said.
However, it said this did not mean overall pension contributions in the year had fallen, as contributions had instead been directed into fixed-term pensions (ratepensioner) and life-long pensions (livsvarige pensioner).
“One of the aims of introducing old-age pensions and phasing out lump-sum pensions was to shift part of pensions taxation forward, so the tax is collected here and now rather than at the payout stage,” ATP said.
“It can now be confirmed that, up to now, this has only happened to a limited degree.”
ATP said the advance taxation was probably part of the reason why old-age pensions had failed to make a real impression with people so far.
Ole Beier Sørensen, chief analyst at ATP, said old-age pensions could be relevant to people outside the low and mid-income groups because they did not affect the basic state pension (folkepension), unlike other pension products.
“But for some people, being taxed here and now presumably seems a bigger burden than a tax in 20 or 30 years’ time,” he said.
However, ATP also suggested the take-up of the new old-age pension products might simply be delayed.
In its analysis, it cited the example of Pensam, which only began offering old-age pensions to its members in mid-2014.
Separately, pensions industry association Forsikring & Pension (F&P) renewed its criticism of the government’s decision to make the move to advance taxation on pensions with the introduction of the old-age pension.
F&P described the move as a “trick” and said it had saved Denmark from a reprimand from the EU on the size of its budget deficit.
The government would have been close to a reprimand from the EU “because of an excessive deficit in government finances, had it not been for the government’s latest tax scam on pensions”, the association said.
The “trick” had given the government at least DKK60bn extra in 2013 and 2014, and in effect saved it from an EU reprimand, it said.
Per Bremer Rasmussen, managing director at F&P, added: “It is fine that people want to save state finances from an EU reprimand, but that is happening at the expense of future generations’ welfare.”
The government should rather focus on creating real growth and save state finances in that way, he said.