Pensions are benefits that are paid to people after they have withdrawn from the labour market. Pensions can be public (state pension), labour‑market related (occupational pension) or private (private pension). They are financed through contributions from employers, employees and the state.
Taxation of pensions accrued in one country and paid out in another country is complex and often requires guidance.
Frequently Asked Questions About pensions and tax
What is a pension?
A pension is a financial arrangement that is intended to secure you an income when you stop working, lose the ability to work or in the event of death.
A pension can both be savings that you pay into yourself and a benefit from the public sector.
There are several main types of pension in Denmark:
State pension
The state pension is paid by the public sector to people who have reached the state pension age. It consists of a basic amount and a possible pension supplement, which depends on your total income. Large payouts from private pension schemes can reduce or remove the supplement.
As a state pensioner, you are no longer offset in your state pension basic amount or pension supplement because of your employment income that is subject to labour market contribution. You can have employment income of up to DKK 122,004 (2025) without it affecting the calculation of your personal supplement percentage.
Occupational pension
A mandatory scheme that most employees are enrolled in via a collective agreement or a company agreement. Employer and employee pay a percentage of the salary, and the money is paid out as a pension when you retire.
Private pension
A voluntary savings scheme that you set up yourself with a bank or pension company. Typical types are:
- Instalment pension – paid out in instalments over at least 10 years
- Life annuity – provides lifetime payments
- Retirement savings – can be paid out as a lump sum without deduction for the contributions, but with tax‑free payout
ATP (Labour Market Supplementary Pension)
A statutory scheme that most employees automatically pay into via their salary. ATP is paid out as a fixed supplement together with the state pension.
How does a pension affect your tax?
A pension affects your tax both when you pay into the pension and when you receive it.
When you pay into a pension:
Contributions to certain pension schemes can give tax deductions, because the contributions are deducted from your personal income.
- Contributions to instalment pensions and life annuities give deductions within annual limits
- Contributions to occupational pensions are typically made with tax exemption at payment (bortseelsesret), so they are not taxed until payout
- Contributions to retirement savings do not give deductions, but the payout is tax‑free
When you receive the pension:
Most pensions, such as state pension, instalment pensions and life annuities, are taxed as personal income when paid out.
The return on Danish pension savings is taxed annually with PAL‑tax (pension return tax) of 15.3% of the annual return.
Which pension contributions are tax‑deductible?
Many pension contributions give tax deductions that reduce your personal income and total tax. The rules depend on the type of scheme and how you contribute.
Instalment pension
Contributions are deductible up to an annual maximum. The deduction is in personal income, and payouts are taxed as personal income.
Life annuity
Contributions are deductible. If set up via the employer, there is no upper limit. Payouts are taxed as personal income.
Occupational pension
Employer and employee contribute. Contributions are covered by tax exemption at payment (bortseelsesret), so they are not taxed until payout. Only salary after your own contribution is taxed, and the employer’s contribution is not taxed at payment.
Retirement savings
Contributions do not give deductions, but the payout is tax‑free at retirement.
See the overview of tax‑favoured pension schemes and how much you can pay into a retirement savings scheme:
What are typical tax mistakes regarding pensions?
- Not having pension and preliminary income assessment updated correctly, leading to incorrect tax or reduced pension
- Moving to Denmark and not reporting foreign pension schemes to the Danish tax authorities (L‑declaration requirement)
- Ongoing return on a foreign pension scheme may be taxable in Denmark
- Exceeding contribution limits for deductions, for example for instalment pensions, so contributions are locked without deduction (with possible options for repayment)
- Moving to Denmark with foreign pension schemes without checking tax rules, which can cause unexpected tax or double taxation
- Not applying for exemption from PAL‑tax when moving away from Denmark
How are foreign pensions taxed when you live in Denmark?
If you have pension savings abroad and are fully tax liable in Denmark, the payouts are generally taxable in Denmark.
There may also be tax in the source country, which can give relief in Danish tax either under Danish rules or under a double taxation treaty.
Taxation depends on whether Denmark has a double taxation treaty with the country and the content of that treaty. In some cases, the pension is only taxed in the source country.
If there is no treaty, you may risk double taxation if the pension is not handled correctly.
Disclaimer
As the above is for guidance purposes only, we accept no liability for decisions that may be made based on the above without prior individual advice. We accept no liability for errors and omissions.