DENMARK – The Danish pensions industry has urged the government to get to grips with pensions policy, and said the latest piece of pensions legislation was nothing more than a bid for short-term tax revenue.

In a commentary in Danish weekly Økonomisk Ugebrev, Carsten Andersen, deputy director of the pensions industry association Forsikring & Pension (F&P), said: "The government – and parliament – need a pensions policy compass.

"Otherwise, the nightmare scenario is that a changing parliament will simply tap pensions assets as the need arises – without glancing at the long-term economic considerations and the pension system's long-term sustainability."

To ease future pressure on public spending on benefits, it was critical that people should find it worthwhile to save, Andersen said.

At the moment, this is not always the case, he said.

He argued that, due to the way earnings-related benefits are calculated, paying into a pension scheme is a bad deal for low and middle-income groups as they approached retirement age.

F&P figures showed that, in the year before retirement, workers might effectively find themselves paying 172.9% tax on pension returns, he said.

"This is a problem parliament should seek to manage, to safeguard support for occupational pensions, which are the hub of our acclaimed system," he said.

Andersen criticised the government's decision last year to offer a tax discount on capital, or lump-sum pensions (kapitalpensionen) in exchange for shifting the taxation on the products to the saving stage and away from the payment phase.

Rather than forming part of a clever pension political plan, F&P said this decision had been meant to plug a DKK5bn (€671m) hole in government finances.

"By introducing the tax discount, the government suddenly decided to favour capital pensions," he said.

"You can argue for or against this, but the point is, the discussion never happened."

The move was only about revenue, which raised the disturbing prospect of the Danish pension system being reduced to a simple source of financing when all else failed, he said.

All leading economists warned against shifting to advance tax on pensions because this threatens long-term fiscal sustainability, Andersen said.

This is because public spending is greatest when citizens retire, in terms of transfers to health and care services.

"Another thing is that the tax discount on capital pensions does not necessarily support the pension policy goal of Danes saving primarily in lifelong pensions," Andersen added.

He said that while many pension plans are now redirecting those payments that had been going into tax-deductible capital pensions into annuity pensions, there are still many people who will find it more advantageous to opt for the new capital pension product in future.

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