Denmark’s pensions and insurance lobby has welcomed new social security legislation which will allow recipients of state welfare benefit to hold onto their pension savings, saying the change was necessary for people to have confidence in saving for a pension.
The Danish parliament yesterday approved the change as part of a raft of legislation, which included amendments to the Act on Active Social Policy, the Act on Active Employment and various other laws.
Contained within it was a reform of the cash benefit system (kontanthjælpssystemet) – the system of state welfare benefits, as opposed to contributory unemployment insurance benefits which cover many Danes when out of work.
The new legislation inter alia removes the requirement for cash benefit recipients to live off their pension before receiving the state benefit, Insurance & Pension Denmark (IPD) said.
Jan Hansen, director of pensions at the association, said: “It is a good day for the Danish pension system and trust in it.
“With the passing of the law, we will stop the practice of confiscating former employees’ labour market pensions if they need the state benefit,” he said.
“It is crucial for trust in the pension system that it always pays to save,” Hansen noted.
IPD said that since 1998, after six months of receiving cash benefits, Danish citizens with money saved in a pension scheme had to withdraw it and spend it before cash benefits would re-start — provided it was possible to withdraw the pension.
Pensions are taxed at 60% when withdrawn before retirement age, the association said.
Changing the law had been a long process, IPD added, as an agreement had been reached under the previous government to remove compulsory pension withdrawal, but the legislation had not managed to make it through parliament before elections were called — so the new parliament had had to look at the agreement again.
Hansen said the pensions industry had been surprised that one set of rules forced cash benefit recipients to save via a special ATP scheme, while other rules forced them to withdraw their labour-market pension — incurring tax at an unreasonably high rate.
“We are pleased that the compulsory withdrawal is now over,” he continued.
According to IPD’s estimates, between 2019 and 2021 some 800 cash benefit recipients and their spouses withdrew DKK156m (€20.9m) from pension schemes as a result of the rule.
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