Denmark’s pensions sector is calling on politicians to bolster pension-saving incentives, following its new finding that one in four Danes are making inadequate pension contributions.
The industry’s lobby group Insurance & Pension Denmark (IPD) this morning released an analytical report showing that 507,000 people in the workforce in 2022 were expected to have pension income amounting to less than half their income before retirement.
That number of people corresponded to 24% of all 25 to 59-year-olds in the workforce, IPD said, citing its own research based on public statistics.
Those people who were saving too little for retirement were typically employed in the advisory and consulting industry, the film and media industry and well as other liberal professions, or were self-employed, IPD said.
Jan Hansen, pensions director at IPD, said: “The vast majority of people in the organised labour market have a pension agreement as part of the collective agreement and save enough for retirement.”
“But there is a large minority who have insufficient pension savings,” he said.
Between 2018 to 2022, IPD said, employment had increased among people aged 25 to 59, but in the same period, the group of people with low pension savings had grown by 90,000 people.
Hansen said there had been “impressive progress” in employment in Denmark in recent years, leading one to assume a decline in the number of Danes with pension pots that were too small.
“But we have actually seen a clear increase in the group of Danes who are saving too little for retirement,” he said.
The lobby group said it was equally surprising that those saving too little for retirement included high earners. While they often did pay into pension plans, they only tended to do contribute a small proportion of salary, it added.
At the same time, other groups in the labour market paid more into pensions, despite lower wages, because they had a higher contribution rate, IPD continued.
“Those who save too little will, at the same time, have the prospect of getting more in public pensions than other wage earners who have saved more themselves.”
Hansen said the problem was sometimes referred to as a “free-rider” problem. IPD said that because of this, it was calling on politicians to strengthen the incentives to save for retirement.
“For example, you can increase the additional pension deduction, to strengthen the deductible part of the pension savings,” the lobby group said, adding that the Pension Commission had proposed this in 2022.
The Commission, convened in the summer of 2020 under former employment minister Jørn Neergaard Larsen, recommended in its report two years later that the additional pension deduction be gradually increased towards 2030 by three percentage points for people up to 15 years before the national pension age, and by six percentage points for people who were older.
IPD said today that increasing the additional pension deduction in that way was estimated to contribute to an increase in labour supply of almost 300 people, while costing the public purse an extra DKK1bn (€134m).
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