The Danish pension replacement rate was 71 per cent in 2022, calculations by Insurance and Pension Denmark (I&P Denmark) have revealed.

The association said it shows that, despite reports, Danish workers are not over saving for retirement.

Commenting, I&P Denmark CEO, Jan V. Hansen, said: “When the income at retirement falls by more than 25 per cent, it reflects exactly what the pension system is capable of today.

“Many of those who go from work to retirement have not saved up their entire lives, and therefore their coverage ratios are lower than the rule of thumb that 80 per cent of the income as a pensioner will enable you to maintain roughly the same standard of living.”

He said that over the past year “we have heard a lot about how Danes are on their way to saving too much”.

“But even though we have fortunately created a strong pension model in Denmark, the vast majority of Danes in jobs will have a significant reduction in income when they retire. And it is the same picture in the future, even though pensions will generally be larger,” Hansen said.

Furthermore, the quarter with the lowest replacement ratios has a replacement ratio of less than 57 per cent of their previous income.

“When the quarter of pensioners with the lowest replacement ratios experience such a large decline in income at retirement, we should rightly focus on ensuring that all Danes save enough for retirement. This is far more important than worrying about the few who may save too much,” Hansen said.

People who were not in work before the state pension age, e.g. because they receive a disability pension, generally have higher replacement rates, but their income will often be significantly lower both before and after retirement than those who have been in the labour market.

Recently, the Social Democrats have proposed to ease the indexation of the retirement age in the future. If a political majority decides this, it will mean that pension savings must be stretched to even more years of retirement – so that the replacement ratio, seen in isolation, will grow less in the future if more is not saved.

“A relaxation of the life expectancy indexation will mean more years of retirement and fewer years of work. All other things being equal, this requires larger savings, and it is therefore necessary to increase the incentive to save for retirement,” Hansen said.

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