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IPE special report May 2018

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Wealthy Danes save 18 times more - ATP

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  • Wealthy Danes save 18 times more - ATP

DENMARK - A small group of high-earning Danish workers had pension savings worth 18 times more than the average pension saver in 2006, according to research by pensions giant ATP.

In the latest edition of its newsletter, ATP revealed of the 2.1 million people who contribute to pensions outside the statutory pension scheme, the richest percentage of the population paid around DKK 675,000 (€90,600) into pensions in 2006.

It said this 1% of the population is actually saving 18 times more than the average DKK38,000 contributed by the other 99% of the population each year, which ATP said is resulting in a large difference in the size of pension payments and considerable variation in the way pension savings are composed.

Ole Beier Sørensen, head of ATP analysis, said: "The larger the total deposits, the greater proportion is used for a ratepension [instalment pension]. The 1%, which saves up the most, used nine out of 10 kroner for a pension annuity. The average annuity payment in the group was DKK 594,000 in 2006."

However, the newsletter pointed out the various reasons for retirement pension savings among wealthier workers has become a "political issue" after the Tax Commission suggested it should place a limit on how much can be saved in a ratepension. (See earlier IPE story: Pension firms attack Danish contributions ceiling)

Similarly, the Danish government yesterday revealed proposed reforms to the tax regime which are expected to hit highest earners as they are also more likely to be saving most for retirement. (See earlier IPE story: Danish tax reforms to undermine pensions)

There are three types of personal pension in Denmark to supplement retirement income from the public pension: a ratepension which lasts up to 25 years, a livrente (regular income pension) that can last for life, and a kapitalpension which is a lump sum paid at 40% tax.

There are no limits to the amount members can place in a ratepension, with tax relief, and although the pension is paid in equal instalments over a period of up to 25 years from retirement, on the death of the member the estate will inherit the remaining savings.

Alternatively with a livrente, or annuity product, the saver receives a fixed amount from retirement until death and there is no limit on tax-relieved contributions, while the capital pension has a maximum contribution limit of DKK46,000 in 2009.

Carsten Koch, spokesman from the Tax Commission, is quoted in the newsletter as stating while there may be many reasons why ratepensions are so popular, "there is no doubt taxation has a role to play".

In particular, he claimed, those on the highest incomes have the opportunity to plan their economic circumstances and optimise their tax payments.

it is for this reason, Koch said, the Tax Commission recommended a ceiling on tax-relief payments of DKK250,000, as it wants to deter pension saving applied for the sole purpose of avoiding tax, although it emphasised it is not proposing a cap on payments to livrente plans.

ATP said in the newsletter it had calculated the Tax Commission's proposal for a contribution cap would affect around 25,000 individuals, however the changes - endorsed by the government earlier this week - have also received criticism from organisations including Danske Bank and Forsikring & Pension.  (See earlier IPE article: Danish tax reforms to "undermine pensions")

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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