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Pension firms attack Danish contributions ceiling

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  • Pension firms attack Danish contributions ceiling

DENMARK - Pension experts have slammed a proposal from Denmark's 'economic wise mean to place a DKK100,000 (€13,423) a year ceiling on pensions contributions and claim most people could instead finance this tax saving by the payments they make when they retire.

The Danish government is trying to finance a tax cut by adding a ceiling on pension plans and by eliminating a deduction it would otherwise make to health insurance - a move which, according to experts, could see the State receive as much as DKK2bn to finance tax cuts with.

However, pension provider Forsikring & Pension has warned there could be reprisals as Danes will demand so-called ‘commitment pensions' as part of their salary if the proposal to cap retirement savings were to win the backing of the political majority.

Forsikring & Pension (F&P) has predicted such pensions, which are independent of the monthly pensions saving, might be used as an alternative route by the Danes to avoid the ceiling on pensions.

Similarly, F&P had argued the ceiling will not have the desired effect but most pensioners could instead cover the cost of the tax cut as they tend to pay the highest tax rate when they retire.

According to figures from the pension provider, more than 60,000 Danes aged 55-64 years pay over DKK100,000 a year into their pension plan, which means most are likely to pay the highest tax rate as pensioners and "their tax [payment] would therefore only be deferred until retirement if the ceiling is imposed, "said Per Bremer Rasmussen, executive director of The Danish Insurance Association.

Forsikring & Pension argued this could also lead to an increase in the demand for ‘commitment pensions' - such as those enjoyed by government officials and ministers - when people apply for new jobs, as employers' payments to these arrangements often far exceed DKK100,000 annually.

A minister in his position for eight years, for example, has the right to a pension commitment worth DKK 285,000 DKK a year and for the rest of his life when he reaches the age of 60.

However, economist Professor Jan Rose Skaksen noted there was no consideration of commitment pensions in the experts' latest recommendations.

"A pensions ceiling shall limit tax deductions. And since commitment pensions do not trigger such deductions, we have not looked at them, "he said.

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