Extending installment pensions could bring 'significant gains' for older Danes

Older Danes could gain benefits of more than DKK 400,000 over the course of retirement by stretching their installment pension payments over a longer period, according to analysis from Sampension.

The research suggested that many Danes would have "good reason" to consider extending the period their pension is paid out, emphasising that this could also help avoid a drop in income after the first 10 years in retirement.

The calculations were based on a 45-year-old with a salary of DKK 450,000 per year, pension savings of approx. DKK 1.35m and a lifelong old-age pension with annual payments of DKK 100,000.

Based on this, an installment pension paid out in the first 10 years of retirement would mean an annual income of DKK 518,564, made up of DKK 340,000 from the installment pension, DKK 100,000 from the lifelong old-age pension and DKK 78,564 from the national pension base.

However, the analysis suggested that annual income could nearly half in the following decade to DKK 261,028 per year, representing a DKK 257,536 drop in income.

This would mean a total pension payment over 20 years of DKK 7,795,920.

In contrast, the research suggested that choosing to have the installment pension paid out over 20 years could give a total pension payment of approximately DKK 8,202,540, representing a DKK 407,000 increase.

This was based on an annual income of DKK 410,127, including DKK 187,048 from the installment pension and DKK 44,515 from the supplementary national pension.

Commenting on the findings, Sampension market and customer advisory manager, Anne-Louise Lindkvist, emphasised that for many Danes "there may be a financial gain to be made by stretching the payouts over an extended period of time".

Lindkvist also explained that whilst savers' annual payments from their installment pension are smaller, they will be entitled to more of the supplementary national pension, meaning that they will get more paid out over their entire retirement.

“In addition, many who receive the installment pension over 10 years experience a fairly marked decrease in income when the 10-year period ends," she continued.

"And it is becoming an increasing problem, as more and more older people feel healthy and have the courage to live - even after the first 10 years of retirement. By extending the payments from the installment pension, you can avoid such a steep income dip.

“Danes generally have increased expectations of income in retirement, where they increasingly want to maintain the standard of living from working life.

"Therefore, it is important that you plan your retirement from the labor market and transition to retirement in good time, and in this connection also consider for how many years the installment pension must be paid out. Here, it can be a good idea to seek advice in order to get the best possible planning for the pension."

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