Frontpage News 2016 Danes curb spendin...

Danes curb spending on pension savings

29 August 2016

The situation is bad for individuals, who are saving up for retirement, and society as a whole, but a solution is to once again increase the maximum  annual contribution to annuity pension schemes to DKK 100,000, according to the Danish Bankers Association, the Danish Federation of Small and Medium Sized Enterprises and the Danish Construction Association.
 
A review of pension contributions by Danes documents that the introduction of a cap on annuity pension schemes in 2010, which was then halved in 2012, has led to pension contributions no longer increasing.
 
According to the Danish Bankers Association, the Danish Federation of Small and Medium Sized Enterprises and the Danish Construction Association, this is bad for individual savers and society as a whole, and that was in no way the intention with the introduction of the cap. These organisations will cooperate and work towards increasing the maximum annual contribution to annuity pension schemes again to DKK 100,000.
 
“It is important to save, particularly in a period with zero interest rates. It speaks for itself that if the interest rate is one pct., then you need to put more aside for later in life, than if the interest rate is five pct. One way of getting more people to save more is quite simply to raise the cap for contributions to annuity pension schemes,” says Ulrik Nødgaard, CEO of the Danish Bankers Association.
 
 
Pension contributions have been curbed after introducing the cap:
 
Contributions to pension schemes, 1995-2015
 Eng1.jpg
 
Source: The Danish Central Tax Administration (SKAT) and calculations by the Danish Bankers Association. Current prices.
Note: *Figures for 2015 are provisional and cover the total contributions to retirement savings. Other states amounts that cannot be divided by sector and covers i.e. contributions to pension schemes and terminable life annuity.
 
Politically in 2012, there was a firm belief that people would pay into a life annuity scheme, where the right of deduction was intact. However, the figures now show that this has not happened to the extent that was expected.
 
Since 1995, Danes’ overall pension savings have been steadily increasing and therefore the total pension fund in Denmark today constitutes approx. DKK 4,000 billion. But the introduction of a cap on annual contributions to annuity pension schemes, first of DKK 100,000 and later DKK 50,000 has put a hard stop to this development.
 
In the Danish Federation of Small and Medium Sized Enterprises, they also believe that the cap on annuity pension schemes has been lowered too much:
 
“The self-employed will be hit hardest by a cap on annuity pension schemes, due to the fact that their incomes swing from year to year. A higher maximum amount for contributions will give the individual saver more flexibility and more freedom to contribute financially in the years where they have the best opportunity to do so.  It is unfortunate that the cap limits peoples’ opportunities to save up so that they can provide for themselves. This should be changed for the sake of society as a whole,” says Ane Buch, Managing Director of the Danish Federation of Small and Medium Sized Enterprises.
 
In absolute figures, contributions to pension schemes topped in 2009, where Danes paid in just under DKK 118 billion. The fall in the growth of contributions comes at a particularly unlucky time, as the currently low interest rate level means, all things being equal, lower return on investments. To maintain the planned pension fund, larger contributions are needed, not least in light of longer life expectancy.
 
 
For further information please contact:
Head of Media Relations, Stine Luise Hansen
Tel.: +45 3370 1009
E-mail: slh@finansraadet.dk
 
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