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The yields from plans covered by Part 1 of PBL are liable to taxation under Section 1(1), Item 1 of PAL.

 

This applies to the following types of plans:

  • Pension plans providing a regular income (annuity)
  • Instalment pension plans
  • Capital pension plans

The plans liable to taxation under Section 1(1), Item 1 of PAL, cf. Part 1 of PBL, must be taken out with banks and pension providers authorised to provide pension plans under the Danish Pension Tax Act. See A.1.2.3, specifically for pension plans taken out abroad.

 

For information on determining the taxable yields, see section B.3.2, Determining the basis of taxation for pension plans with life insurance companies and pension funds, and section C.2, Determining basis of taxation for plans with banks and credit institutions as well as pension providers liable to taxation.

 

A common characteristic of the plans is that, as a general rule, disbursements from the plans cannot begin before the early retirement age at the earliest. Exceptions thereto may be critical cases of illness, disablement and death. It is also a common characteristic of all pension plans based on tariffs that there is an unambiguous connection between the pension provider's commitment in relation to each individual pension holder and the regular pension contributions.

 

Definition of plan based on tariffs

For pension plans based on tariffs, there is an unambiguous connection between the pension provider's commitment in relation to each individual pension holder and the regular pension contributions. An example of a pension plan based on tariffs is an annuity with an insurance company where the disbursements depend on the contributions made toward the annuity, the costs as well as the yields from the capital savings.

 

Definition of early retirement age

Early retirement age is the age mentioned in Section 74 of the Danish Unemployment Insurance Act (Arbejdsløshedsforsikringsloven). The early retirement age is currently 60 years.  For more details on the early retirement age, see Section 74a of the Danish Unemployment Insurance Act.

 

Pension plans providing a regular income (annuity)

The holder of a pension plan providing a regular income (annuity) is liable to pay tax on the yields from the plan under Section 1(1), Item 1, (1) of PAL.

A pension plan providing a regular income is described in Section 2 of PBL and is characterised by the purpose of the plan being to provide a pension in the form of a regular income which ceases when the holder of the pension plan dies and which is disbursed

  • by the authorities following employment in the state, the public school system, the Danish National Evangelical Lutheran Church, the regions or the municipalities,
  • under state-subsidised pension plans,
  • from the Labour Market Supplementary Pension Fund (ATP),
  • from a pension fund or
  • from an insurance company.

 

It is a condition that

  • the plan is based on tariffs, and
  • that the plan corresponds to a retirement pension with disbursements being made over at least ten years, starting when the pension holder reaches early retirement age at the earliest.

 

Close relatives may also be named as beneficiaries, i.e. the plan may be like a surviving spouse or surviving dependent or children's pension. In addition, the plan may be like a disability pension.

 

Instalment pensions

Under Section 1(1), Item 1, (1) of PAL, the holder of an instalment pension plan is liable to pay tax on the yields from the plan.

 

Instalment pension plans are divided into annuity insurance plans for pension purposes, see Section 8 of PBL, and instalment savings plans for pension purposes, see Section 11 A of PBL.

 

An annuity insurance plan is taken out with an insurance company or a pension fund, and an instalment savings plan is taken out with a bank.

 

Instalment pension plans are characterised as follows:

  • The insurance sum or the savings must, as a general rule, be disbursed over a period of at least ten years.
  • The pension plan must be based on tariffs.
  • The pension plan must, as a general rule, be taken out before the pension holder reaches early retirement age.
  • Disbursements cannot, as a general rule, begin until the pension holder reaches early retirement age at the earliest and no sooner than five years after the plan has been taken out. It may also be agreed that disbursement can take place in case of reduced working capacity etc.
  • The last instalment must be disbursed no more than 25 years after the pension holder reaches early retirement age.
  • Close relatives may be named as beneficiaries.

 

Capital pensions

Under Section 1(1), Item 1, (1) of PAL, the holder of a capital pension plan is liable to pay tax on the yields from the plan.

 

Capital pension plans are divided into endowment insurance plans for pension purposes, see Section 10 of PBL, and savings for pension purposes, see Section 12 of PBL.

 

Capital pension plans are characterised as follows:

  • The insurance sum or the savings must be disbursed as a one-off payment. 
  • The pension plan must be based on tariffs. 
  • The pension plan must be taken out before the pension holder reaches early retirement age. 
  • The pension cannot be disbursed until the pension holder reaches early retirement age at the earliest, and disbursement must take place no more than ten years after the pension holder reaches early retirement age. Disbursement may also take place in case of permanently reduced functional capacity or life-threatening illness.
  • Close relatives may be named as beneficiaries.