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PENSIONS

What foreign residents need to know about Denmark’s pension rules

Denmark has different types of pension schemes and knowing which ones are beneficial to you as a foreign worker can be complicated. We spoke to an international pensions expert to break down the pros, cons and taxes of having a pension in Denmark.

Silhouette of elderly couple sitting in the sunset
Most pensions in Denmark are subject to Danish tax. Photo by Harli Marten on Unsplash
There are three types of pension in Denmark: State pensions, labour market pensions and individual pensions.

State pension (folkepension)

The folkepension is state-provided and not related to your employment. It consists of a basic element (grundbeløb), which everybody gets, and a supplement (pensionstillæg), which is adjusted according to whether you live alone or with a spouse or partner. You can also get other supplements depending on your health and income.

To qualify for the basic state-sponsored folkepension, you must have a permanent address in Denmark, have lived in Denmark for at least three years between your 15th birthday and retirement age, and be a Danish citizen.

If you are not a Danish citizen, however, you still qualify for this pension if you have lived in Denmark for at least 10 years between the age of 15 and retirement age. Citizens of EU and EEA countries and Switzerland, as well as the United Kingdom, qualify without Danish citizenship, as do some refugees.

You can only claim the full retirement pension if you have lived in Denmark for 40 years between the age of 15 and retirement age. Otherwise you get a partial pension.

State pension age

Because of a 2017 law change, the age at which you can retire and take out a folkepension depends on when you were born and the age has been gradually raised between 2019 and 2022. If you are born after 1967 the state pension age is now 69.

You can see the relevant breakdown of retirement ages here.

State pension per month before tax in 2022 is 14,019 kroner for a single person and 10,347 kroner for someone who is married or cohabiting. 

ATP (Arbejdsmarkedets Tillægspension)

ATP pensions are a supplementary labour market pension scheme which nearly everyone in Denmark pays into. Deductions are automatically taken out of your pay check – you can see them on your pay slips. 

You only pay a third of your ATP pension contribution while working – you employer pays the other two thirds.

You can read in detail (in Danish) about tariffs, deductions and other factors which determine the ATP pension payout here.

You can check how much ATP pension you can expect to receive at any time by logging into to your account via borger.dk.

Private or individual pension

Anyone in Denmark can join a private pension scheme, and if your company offers a private pension programme, then you will also see line items on your pay slips for employer and employee contributions. 

What happens if you leave Denmark with a pension fund?
 
State pension
In order to be entitled to full Danish state pension, you need to have resided in Denmark for 40 years between your 15th birthday and retirement age. If you have lived in Denmark for less than this time, you will receive a proportion of the Danish pension.
 
Denmark has arrangements with certain countries, which means you can still receive your Danish state pension if you move to a country either within or outside the EU. However there may be other requirements, depending which country you are retiring in, which can be found here.

If you live in an EU/EEA country, Switzerland, the USA, India, the Philippines or South Korea, you can be paid the full pension including all the supplements. But if you live outside these countries you can only be paid the basic pension without supplements. There is a guide to applying here.

Pension tax 

If you retire abroad, the payments from your Danish pension scheme, both state and private will be subject to Danish taxation. Pensions are taxed at the Danish income tax rate, which is 37 percent if you earn under 500,000 kroner and 52 percent if you earn over 500,000 kroner.
 
“According to almost every double tax agreement entered by Denmark, Denmark has the taxation right to Danish private pension schemes,” Michael Thomsen, pension expert at Danes Worldwide told The Local.

 
“The country you’re residing in has the right to tax that pension as well. But due to the the double taxation rule, they have to take into consideration the tax already paid in Denmark. Normally this is higher than most other countries, so it may not trigger a second tax deduction in the country of retirement,” Thomsen explained.
 
“Currently there are only three countries where you can take up residence and have a Danish pension scheme paid out without being subject to Danish tax: Malaysia, Australia and Romania. You will have to pay the tax rates of those countries but not of Denmark,” Thomsen said.
 
If you want to transfer your ATP pension fund abroad before retirement age, it is “near or less impossible” Thomsen says, as you get a deduction on your ATP pension as an employee and don’t pay tax on employee pension contributions. If you manage to transfer your ATP fund, you will be subject to 60 percent tax, which is the same for taking out the pension early.
 
However it is not a problem to get payments from a Danish ATP pension if you are of retirement age and abroad, it is just subject to tax.
 
For that reason, Thomsen advises only paying into a Danish pension scheme if you plan to live in Denmark for ten or more years.
 
“First of all, there are certain administration costs for setting up a pension scheme in Denmark and the yield has to be quite high if you want to have a gain after these costs. If you’re in Denmark between four and eight years, there is a limitation on how much you can actually pay into the scheme during these rather short periods.
 
“Secondly, due to the rather high tax in Denmark, we probably have a higher tax rate than a similar scheme from where you may retire, so therefore you would be better off saving the money in another way than in an ordinary Danish pension scheme,” Thomsen told The Local.
 
Danes Worldwide pension expert Thomsen advises many expats, especially those on the special expat tax scheme of paying 27 percent income tax for up to seven years, of investing in a non-taxable pension scheme.

 
“With these schemes, you don’t get any deductions when you make payments into the scheme and you can invest the funds where you like. Then when you move country, you can take the money with you and as you haven’t had any deductions, you won’t be taxed when you later withdraw the money,” Thomsen said.
 
There is also a new pan-European personal pension product (PEPP) which has recently launched, to allow savers to easily take their private pension with them if they move within the European Union.
 
Whenever the saver changes the country of residence, the provider will open a new sub-account for that country. If the provider cannot offer such option, savers have the right to switch provider free of charge. The applicable taxation will be that of the country of residence.
 
What happens if you retire in Denmark with a pension fund from abroad?
“Your pension from abroad will be taxed according to that country and then, as a Danish resident, you will have to include those pension payments in your Danish income tax assessment.
 
“When your tax is calculated, the tax you’re already paying on your pension from abroad, will be taken into consideration. If this is less than Danish tax then you will have to pay the difference,” Thomsen told The Local.
 
There are some variations to the rules, depending on the country, Thomsen explained. For example the Denmark-U.S. double tax agreement means pensions from the U.S. can only be subject to U.S. taxation, so it is excluded from Danish tax.
 
Regarding a state pension from abroad, it depends on the rules of individual countries as to whether you are entitled to have your foreign pension (udenlandsk pension) paid out in Denmark. Those claiming pensions from an EU/EEA Member State, Switzerland or the United Kingdom can apply online here.
 
You can also still qualify for the Danish state pension if you have lived and worked abroad but the amount you will receive depends on how many years you have lived in Denmark. If you want to apply for a Danish pension and foreign pension, you need to contact Udbetaling Danmark.

If your country does not have a pension agreement with Denmark, it is advised to contact your embassy.

 
 
 

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TAXES

Danish government returns debt payments from 138,000 people 

Around 138,000 people in Denmark have been unable to repay debts to the Danish state in 2022 after money they paid was refunded.

Danish government returns debt payments from 138,000 people 

From January to October 2022, 138,000 people in Denmark trying to square their debts with the government were refused due to confusion about whether the Danish Debt Collection Agency (Gældsstyrelsen) actually has the right to receive it, newspaper Berlingske reports.

Having a debt to the Danish public sector on your books can have serious financial consequences, including jeopardizing your eligibility to secure a mortgage.

Data from the Debt Collection Agency indicate the number of debts considered “not ready for recovery” has increased by 1.5 million this year. Half of those debts are connected to the Danish Tax Authority (Skattestyrelsen). 

In total, the 138,000 people were refunded 121 million kroner, including 17 million kroner in unpaid interest. That works out at an average refund of 750 kroner per person.

Based on the scale of the problem, the government will have to consider cancelling some of the debts, Peter Bjerre Mortensen, professor of public administration at Aarhus University, tells Berlingske. 

“They need to swallow some very big camels and/or simplify some legislation or forgive some debts, because right now it seems that things are still going the wrong way with regard to collecting public debt,” Mortensen said. 

The issues with ‘unpayable’ debts first arose in 2015 when EFI, the IT system Skat used to collect debt, was shuttered, according to Berlingske.

Debts to the Danish state have been growing since then. The parliamentary ombudsman said earlier this week that he would try to find out why individuals have been unable to repay debts.

“The ombudsman has received complaints from several members of the public and there have been articles in the media about people who could not repay their debt to the state,” wrote the ombudsman, Niels Fenger.

Tax minister Jeppe Bruus has previously recognised the issue with the repayment system.

“This is a huge challenge and something that must be worked on and improved,” he told newspaper Jyllands-Posten in September.

READ MORE: ‘Topskat’: What is Denmark’s high income tax bracket? 

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