EUROPE - Denmark's newly elected Social Democrat-led government is expected to make changes to conditions for pensions, but it is also bound to let the retirement reform of its predecessor pass through parliament, including the cuts in early retirement pension the party once vocally opposed.

Since the Social Democrats - led by Helle Thorning-Schmidt - only narrowly won the election as part of a coalition, observers say their dependency on other political parties means compromise on pensions issues is inevitable, despite the party's historical pro-welfare credentials.

But the new coalition is seen as making its own changes to the pensions sector, notably by imposing a ceiling on tax-favourable pension contributions.

Torben Jensen, chief executive at Aon Hewitt Nordics, said: "As it looks right now, the retirement reform will take place. The increase in retirement age has been agreed."

Danica Pension said in a commentary that one effect of the proposed retirement reform would be a reduction in the period during which people could take their early retirement pension to three years from five.

The new coalition government, the so-called 'red bloc', consists the Social Democrats, the Socialist People's Party, the centrist Social-Liberal Party and the extreme left-wing Red-Green Alliance.

AP Pension pointed out in a commentary that the 'blue bloc' in parliament - which includes the Liberal Party of outgoing prime minister Lars Løkke Rasmussen and the Danish People's Party - agreed with the Social-Liberal Party before the election that they would hasten the passage of retirement reform.

Despite the change in prime minister, these parties still have a combined majority in parliament.

"Therefore," AP Pension said, "one can expect the bill to go through, even though there is strong resistance within the red bloc, particularly against a tightening of the early retirement pension rules."

In their election manifestos, both the Social Democrats and the Socialist People's Party pledged to limit tax-free pension contributions to DKK100,000 (€13,000) a year, while the Social-Liberal Party favoured a higher limit of DKK150,000. At the moment, there is no ceiling.

Danica Pension told its customers that 2011 could therefore be the final year before their contribution allowance was reduced.

Meanwhile, the Danish Insurance Association (Forsikring & Pension) is calling on the new government to leave the pensions sector alone.

Managing director Per Bremer Rasmussen said: "It is important to safeguard Danes' pension savings, so that they can retire confidently, and we can finance the large generation of old people to come.

"So we call on the new government to leave the framework for savings alone. A new pension ceiling will create insecurity and a lack of transparency. It will dent the incentive to save, without seriously ensuring more money for the state."

New investment levies may also be introduced. The Social Democrats and Socialist People's Party have plans to introduce a 0.25% tax on share transactions, Danica Pension said. This will translate into slower growth for pension savings, it added.

Also discussed by members of the winning coalition during the election campaign was a plan to allow Danish pensions institutions to become commercial lenders, Jensen said.

"It is still on the drawing board to set how much and in what kind of projects," he said.

However, with power now so finely balanced in Denmark's parliament, details on future economic policy are far from clear.

One pensions consultant, who preferred not to be named, noted that Thorning-Schmidt had even invited the Liberal Party into discussions on policy.

"We are likely to see a general consensus in what will happen on finance and economics," the consultant said.