Danes must increase contributions by up to 3.7% to afford flexible retirement

Danish savers will need to increase their pension payments to as much as 18.7 per cent of their salary, in order to ensure they have enough savings to take advantage of flexible retirement policies before reaching state pension age, according to analysis by PFA.

The analysis was conducted on the assumption of an annual salary of DKK 400,000, falling to DKK 320,000 in the three years of part-time work before the state pension age, and a usual pension scheme where 15 per cent is paid in per month.

The Danish pension company explained that a 40-year-old who wants the opportunity to shift to part-time work three years before the national pension age must increase contributions to 16.2 per cent, equating to DKK 228 per month after tax, rather than the typical 15 per cent contribution.

Meanwhile, a 50-year-old and a 55-year-old would need to increase their payments to 17.4 per cent and 18.7 per cent, equating to an additional contribution of DKK 456 and DKK 703 per month after tax respectively.

Commenting on the analysis, PFA consumer economist, Carsten Holdum, stated: "The calculations show that it is not terribly expensive to get this extra degree of freedom for flexible withdrawal.

“This is largely due to the fact that when the pension is extended a little longer by starting payment a little earlier, then there is less set-off; so you get a little more in national pension.

“And the sooner you start saving extra, the less it means per month. So if you make a plan well in advance, you also avoid the very unpleasant, where you have to reduce consumption very suddenly at once.

He also clarified that the savings do not have to be paid into the pension scheme, but could, for instance, be paid into free funds or used as repayments on debt.

Holdum explained that the recent shifts in retirement have seen Danes increasingly want flexible retirement options, such as part-time work, noting that this reflects a broader change in society, where people are encouraged to work longer, and subsequent rewards are given for this.

He continued: “It starts a dynamic where employees and employers find new solutions. Not least the psychological part of knowing that employees feel more useful and in demand in the labour market.

“The desire for flexibility comes in because many older people probably want to continue working, but also want time for friends or family such as grandchildren. However, it is important to be aware that it requires some extra savings if you want to step down before retirement age.”

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