Danish pension savers are being warned they are at risk of double taxation on their instalment pension (ratepension) contributions.

A survey of 1,000 Danes by Epinion, carried out on behalf of Sampension, found that many Danes are at risk of being hit by double taxation on their pension because they have no control over whether their installment pension contributions this year will exceed the deduction limit.

For 2023, instalment pension contributions up to DKK 60,900 are deductible and deposits above this limit are not deducted. Since tax must be paid on pension payments, the money will therefore be taxed twice.

The survey found that of those who contribute to one or more installment pensions, 55 per cent have not checked whether they will contribute more to an installment pension than they can get a deduction for. Forty-two per cent have checked, whilst the rest said they did not know.

"There are of course very few people who want to pay more in tax than necessary. Nevertheless, there are many Danes who have part of their pension contributions double-taxed because they put more money into installment pensions than they can get a deduction for,” Sampension head of market and customer advice, Anne-Louise Lindkvist, said.

According to the Danish Tax Agency (Skattestyrelsen), each year there are between 35,000 and 40,000 Danes who pay more into their installment pension than is given a deduction, and who therefore risk being double-taxed. Of the 38,000 citizens who paid too much in 2021 – where the tax agency's latest figures come from – almost 70 per cent had paid up to DKK 10,000 more than was deducted.

"The problem with excessive payments and double taxation typically arises if you have several instalment pensions that you pay into at the same time. It can, for example, be because you have changed jobs – which many do on an ongoing basis – and in this connection you will have to pay into more pensions,” Lindkvist explained.

Savers can also end up in this situation by having additional installment pensions with a bank, as well as their labour market pension scheme.

"If you pay into an instalment pension via a pension company, the company automatically ensures that these payments do not exceed the deduction limit. However, if you also pay into installment pensions elsewhere, you must ensure that you keep the payments under the deduction ceiling overall. However, very few people have a handle on it, which is evident from the survey," Lindkvist said.

According to the survey, young people, in particular, do not have control over their installment pension payments; 65 per cent of 18-34-year-olds have not checked whether their contributions this year will exceed the deduction ceiling, while the same applies to 58 per cent of the 35-55-year-olds and for 46 per cent of the 56-65-year-olds.

---