Around three quarters (74 per cent) of Danes who paid into an instalment pension this year could be at risk of facing an "unnecessary" tax bill as a result of not checking whether their payments will exceed the deduction ceiling, research from Sampension has revealed.

Current regulations mean that Danish savers can pay up to DKK 63,100 into an instalment pension with full deduction in 2024, with deposits above this limit not deducted.

However, since tax must be paid on the payment at the same time, the money is therefore taxed twice.

The research revealed that 57 per cent of those who paid into an instalment pension have not checked whether this year they will pay more into an instalment pension than they can get a deduction for.

In addition to this, nearly a fifth (17 per cent) were unsure, while the remainder have checked it.

Indeed, Sampension Community chief adviser, Helle Dalsgaard, warned that while very few people want to have their money taxed more than necessary, there are many Danes who risk just that every year, because they pay too much into their instalment pension and therefore lose the deduction for part of the payments.

"Thus, they have the prospect of being hit by double taxation, as tax is paid on the money both in the year of payment and again when it is to be paid out," Dalsgaard explained.

"The missed deduction can add up to thousands of kroner, so it is definitely not a small amount."

According to the Danish Tax Agency, up to 40,000 Danes pay more into their instalment pension than is given a deduction every year, and are therefore at risk of being taxed twice.

Given this, Dalsgaard said that there is good reason for Danes who pay into an instalment pension to be aware of whether their payments stay within the deduction limit this year.

"This also applies if you plan to invest extra in your pension savings before the new year, and in this connection you risk exceeding the instalment ceiling," she added. "Alternatively, you can put the money into a pension with lifelong payment with deductions.

"The problem with excessive payments typically arises if you pay into several instalment pensions. If you have a pension through your job, you usually also have automatic instalment pension payments, where the pension company ensures that the payments do not exceed the deduction limit.

"But in addition, there are also a number of Danes who have an instalment pension in e.g. the bank, and here you have to make sure yourself that your instalment pension payments overall stay within the limit."

However, Dalsgaard emphasised that "all hope is not lost if you end up paying too much into an instalment pension", as it will still be possible to ensure that the payments are not taxed several times.

"However, it requires that you pay attention when the annual statement arrives in March," she clarified.

"Here you have to check whether you have had too high instalment pension payments, and if you have, you have to contact your bank or pension company, where you then have the option of getting the money paid back or having it transferred to a lifelong pension scheme."

Despite this option, Dalsgaard acknowledged that, unfortunately, there are many Danes who do not get the excessive payments taken care of, and who will therefore end up with an unnecessary extra tax bill.

Indeed, analysis from BDO, based on data from the Danish Tax Agency, showed that while there were 39,400 people who paid a total of DKK 404m more for instalment pensions than they could get a deduction for in 2023, less than a third (27 per cent) have corrected for their mistakes, while the previous year the proportion was 10 per cent.

"This is also the reason why, as something new, the Tax Agency has sent a letter this spring to the Danes who paid too much into an instalment pension last year," she noted.

"And this has actually contributed to more people reacting and thus avoiding double taxation. It's a positive thing to say the least - although it's still only a small number."

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