If you are planning to move abroad, considerable attention should be paid to the matter of funding your retirement. Retirement savings and pensions are complex matters; the brief guide below is intended to provide a quick overview of options for saving up funds while living abroad.
Prior to departure
Before you leave, you may wish to set up a separate pension plan (the §53 plan) to cover the period during which you will be living abroad. It will resemble your existing plan, however you cannot make tax deductions based on your contributions while you are abroad. However, the payments you receive will be tax exempt, i.e. you will not be paying income tax or capital gains tax.
Upon your return to Denmark
Upon your return to Denmark, your contributions to the before mentioned plan (without tax deductions) will cease, and you will resume contributing to your previous plan, with tax deductions. Then, ongoing gains from the plan without tax deductions will be converted to income from capital, but you will not be paying tax on yields of pension scheme assets (DK: pensionsafkastskat). However, this applies only if your income is fully taxable in Denmark. If you are not fully subject to taxation in Denmark, you may apply to the Ministry of Taxation (SKAT) for an exemption from certain taxations.
Extended period abroad
If you intend to stay outside Denmark for many years, you may want to investigate the advantages of establishing a pension plan in your country of residence. That country may have advantageous tax regulations compared to Denmark. On the other hand, there may be a risk that your contributions yield less of a tax deduction.The disadvantage of having a pension plan outside Denmark is that it may not provide the coverage and profit typically expected by Danes. A pension savings plan will be held in the currency of the country in question, thus introducing an exchange rate related risk. Hence it rarely pays to contribute to a plan abroad unless one plans to continue living abroad once the pension matures. In addition, the amount you might feasibly contribute during a posting of 2-3 years is modest, and as a result the plan fees may disproportionately reduce the returns.
The scheme depends on whether you live in or outside Denmark
| Pension | Deduction | Capital income | Tax of pension returns |
| Pension savings | – | DK + Abroad – | + |
| Pension savings to Denmark | + | DK – Abroad – | + |
* Note that some countries may impose tax on capital gains.
Do the homework
If you are being posted abroad, it is wise to have your employer advise your pension fund company that you are moving. Similarly, have your employer advise the company when you return; there are huge tax implications.
Should you have questions about saving up for retirement while living abroad, it is strongly recommended that you seek input from your pension fund company. If your questions relate to taxation while you live abroad, it is preferable to contact an accountant.
As a member of Danes Worldwide, you are welcome to be in touch with us and request additional details from our pension expert. In addition, we suggest you visit: www.pensionsinfo.dk/Borgerservice/velkommen.html (using NemID) to get an overview of contributions and future payments.
Read the article in danish
Note: Danes Worldwide is not liable for any consequences arising from information provided here.
Sources:
pfa.dk/privat/livsaendringer/du-skal-udstationeres/
pfa.dk/privat/skat/skatteregler-for-pensionsafkast/
ida.dk/content/pension-og-udland