Retirement Pension

A retirement pension plan is a type of pension savings that provides financial support to a person in retirement. It is a long-term savings arrangement where person regularly contributes money to a pension plan, which is later primarily paid out as a lump sum, although it can also be paid out periodically. 

How does the retirement pension plan work? 

A retirement pension plan works in the way that a person regularly contribute money to a pension savings account throughout their working life. These contributions are typically invested by the pension provider with the aim of growing the savings over time. When the person reaches retirement age, they can begin to receive payouts from their retirement pension plan. These payouts can be received as regular income or as a lump sum, depending on the chosen pension plan. You do not pay taxes or fees upon payout. As a result, your public pension is not affected. However, you do not receive tax deductions for your contributions.

Contributions and maximum limits

The retirement pension plan is typically funded through contributions made during your working career. You can continue making contributions even after you have started receiving the public pension, up to 20 years after reaching the pension payout age.

The annual contribution limit without tax varies depending on your age and how close you are to reaching the public pension age:

• Everyone can contribute the annual base amount of DKK 9,100 in 2024 (DKK 8,800 in 2023).
• If you are up to 7 years from your public pension age, you can contribute a higher amount, up to DKK 58,900 in 2024 (DKK 56,900 in 2023).
• If you are already receiving payouts from a tax-deductible pension plan and are up to 7 years away from the public pension age, you should check your contribution options. Your age and any payouts from specific pension schemes determine how much you can contribute to your age savings without tax. You can find your specific situation on the SKAT website under the section "How much can I contribute to my age savings?"

Investment options and risk levels

When contributing to your retirement pension plan, you have the option to choose how your funds are invested. This can include savings products such as lifecycle products, fixed-profile products, or link funds. It is important to consider your risk tolerance and investment strategy when choosing your investments to achieve your financial goals and ensure a stable retirement income.

Benefits of an retirement pension Plan

Choosing an retirement pension plan as part of your pension savings can offer several benefits, including:

• Lump sum payout: You have the option to receive the entire age savings amount in one lump sum, but you can also choose to receive it in installments if that suits you better.
• Long-term savings: An age savings plan allows you to build long-term savings that can support your needs during retirement.
• Investment growth: The funds in an age savings plan are invested, which can provide opportunities for growth and a larger savings amount over time.

Considerations when choosing a retirement pension plan

When making decisions about your pension savings, there are several factors to carefully consider. The choice of a retirement pension plan can have a significant impact on your financial future as a retiree:

• Financial needs: Evaluate your financial needs and goals for retirement to determine whether a retirement pension plan is the right solution for you.
• Payouts: Consider whether the option of receiving the entire savings in one lump sum is attractive to you. Contributions to a retirement pension plan are not tax-deductible, unlike contributions to a annuity pension or life annuity. For many, the ability to receive the entire savings in a lump sum makes the retirement pension plan particularly appealing.
• Retirement age: Take into account your expected retirement age and how this affects the timing of your payouts.
• Investment strategy: Assess your risk tolerance and investment strategy for your pension savings to ensure they align with your long-term goals and needs.

Get independent pension advice at Söderberg & Partners

When it comes to making decisions about your pension savings, it is crucial to have access to reliable and independent advice. At Söderberg & Partners, our experienced team of pension advisors is ready to help you navigate the complexities of pension planning. Whether you want to learn more about retirement pension, annuity pension, life annuity, or other savings options, we are here to assist you. We offer tailored solutions, including company pensions, that match your needs and goals, so you can feel confident and well-informed about your financial future.