Opportunities in Fund Raising: Denmark’s Pension System

Knowledge for getting the most from the advinda Premium goNordics Pension & Insurance Package.

Population: 5.6 million

Pension system design

The Danish pension system is composed of:

  1. a public pension pillar,
  2. two statutory occupational schemes,
  3. voluntary private pension savings/pension funds.

Public Pension

Public pension consists of two tiers:

  1. Annual basic amount/universal income:
    • Paid to anyone meeting three fundamental conditions: 1) Danish nationality, 2) resident in Denmark, 3) having lived in Denmark for 40 years within the period between the age of 15 and 65 (necessary to receive the full amount)
    • Payments are limited to a maximum amount adjusted every year (2017: 73.920 DKK/9,925 EUR p.a.)
  2. “Arbejdsmarkedets Tillaegspension” or ATP:
    • Statutory, fully funded, collective insurance based, defined-contribution scheme
    • Provides a life-long pension from the age of 65, covers all wage earners
    • most significant for relatively low incomes or those living on transfer incomes for much of their working lives
    • payout determined by the contributions a person makes to it during his/her working life
    • Contributions are mandatory for employees aged 16 to 65 that work more than 9 hours a week, and employers; paid 2/3 by the employer, 1/3 by the employee
    • Contribution is a fixed monthly amount varied only against the number of hours worked; is adjusted every year (2017: 284 DKK/38 EUR for private employees in general), increasing more or less in line with average earnings
    • Voluntary for self-employed
    • ATP works as an investor with assets of more than DKK 753bn – investing e.g. in bonds, equities, real estate, or infrastructure

The normal retirement age in Denmark is currently 65 years, will be gradually increased between 2019 and 2022 to 67 years, to 68 years in 2030, to 69 in 2035 and to 70 in 2040, provided that life expectancy improves by five years.

Occupational Pensions

  • nearly 90 percent of the Danish workforce is covered by an occupational pension
  • voluntary (in contrary to mandatory ATP)
  • fully funded defined-contribution schemes agreed between the social partners through collective agreements
  • contribution rates are set by according collective agreement and range between 12% and 18% depending on the income level

Private pensions

Total investment of providers of funded and private pension arrangements equivalent to: 205.9% of GDP (2015)

Private pension assets 2016: $ 611,895.5 million USD (all forms of private investment with a value associated to a pension plan over which ownership rights are enforced by institutional units, individually or collectively. This indicator is measured in millions of USD; source: OECD)

Pension funds’ assets 2015: $ 138,345.4 million USD (assets bought with the contributions to a pension plan for the exclusive purpose of financing pension plan benefits. The pension fund is a pool of assets forming an independent legal entity. This indicator is measured in millions of USD; source: OECD)

Net pension replacement rate 2014: 66.4% (individual net pension entitlement divided by net pre-retirement earnings; measures how effectively a pension system provides a retirement income to replace earnings. This indicator is measured in percentage of pre-retirement earnings by gender; source: OECD)