The new chief executive of Danish labour-market pension fund PenSam has spoken out about aspects of the government’s planned changes to the pension system, calling on lawmakers to ensure it is worthwhile for the lower-paid to save for a private pension.
Torsten Fels, who took over as the DKK108bn (€14.5bn) pension fund’s chief executive in August from long-standing leader Helen Kobæk, said: “It is important for all parties that the system be simplified but in such a way that it can function on a stable basis for many years.”
He cited a number of drawbacks for PenSam members in Denmark’s current system.
“Because of their relatively low incomes, their savings are correspondingly small, and, on top of this, so much of their income is offset against their state pension (folkepension) that, in many cases, it hardly pays off for them to save up,” Fels said.
PenSam members can compensate for this interplay between state pension and private pensions by paying into an old-age savings scheme (aldersopsparing), he said, but he added that this was not an ideal solution because it made it harder for individuals to get an overview of their pension.
The government, in its recently launched 2025 plan, partially tackled the problem of offsetting within the pension system, but its solution will lead to yet another layer of complexity, Fels said.
“We would rather they went the other way and simplified the system by putting the same tax deduction in place for all, corresponding to the deduction for top-rate taxpayers,” he said.
Fels argued that everyone would then have a clear incentive to save for their pension, regardless of age and income.
However, because the government is “unlikely to change its mind” on this, Fels said PenSam had some proposals to change the 2025 plan based on concrete examples from its own customers.
It proposed that the new special pension scheme named in the plan – which is called an age-related savings annuity (aldersopsparingslivrente) and will not be offset against social benefits – be made available for people with not just five years or fewer until state pension age but also for those with up to 15 years to go, or even for the whole of one’s working life.
The new scheme should also target those with relatively low incomes by reducing the ceiling on annuity contributions to DKK30,000, for example, PenSam said.
It said the opportunity to use this scheme should not be conditional on an individual’s receiving no payments from tax-deductible pension schemes because, in practice, this would prevent people from making use of a partial pension.