COPENHAGEN: Danish government and a key political party have finally agreed on tax reforms that include incentives for retirement savings. The parties agreed changes to the way pensions are taxed, solving a long-running problem of no financial incentive to save for a pension in the years leading up to retirement. The pensions industry welcomed the deal, saying it eased the so-called “interplay problem” that had existed for many years. Private pensions income is currently offset against social security eligibility, effectively removing the benefit of making pension contributions in an individual’s last years before retirement. A key element of the reform is that up to DKK70,000 a year in pension contributions will be tax deductible – with the deduction being targeted in particular at the point in working lives where the interplay problem is worst, the government announced. People with more than 15 years to state pension age will be given a deduction at a rate of 12%, whereas those with 15 or fewer years to go will have a 32% deduction rate, it said. Brian Mikkelsen, minister for industry, business and financial affairs, said: “I am glad that we have delivered, with this agreement, a significant contribution to solving the interplay problems which mean that for various people it has not been worth it to save up for their own pension.” Insurance & Pension Denmark (IPD), the industry association, said another measure contained in the package also helped incentivise pension saving. A new tax deduction for employees and the existing employment tax allowance now take pension contributions into account, which is not the case today. Per Bremer Rasmussen, chief executive of IPD, said: “I am glad the government has now on the whole reduced the interplay problem quite considerably with this new initiative in conjunction with the solutions put in place last year.”
