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Labour Market Pensions in Denmark


In Denmark, labour market pensions - the second pillar in a three-pillar system - are normally established either with life insurance companies or through pension funds. There are two types of pension funds: Company Pension Funds and Occupational Pension Funds. The latter are the predominant type of pension funds in Denmark.

Some characteristics of Occupational Pension Funds in PKA:

  • Occupational pension funds are established as part of collective agreements between employers and employees.
  • Contributions are fixed in these agreements as a certain percentage of income. PKA fund contributions range from 12 to 18%. A typical contribution for a full time worker within the scheme would be a DKK 2,500 a month (€337).
  • Members are employed by many different employers - in PKA pension funds predominantly the County, or local authorities or the State.
  • Members have the same (or a very similar) education and are employed in the same sector. As a result, an employee changing his or her job is normally allowed to remain a member of the same pension fund.
  • Since pension benefits are not income-related but determined by contribution, they can be transferred when an employee changes jobs. The new employer simply pays the agreed contribution to the pension fund based on the new salary.
  • As with most occupational systems in Denmark, PKA pension funds are hybrids between DB and DC-systems. Pensions are thus guaranteed benefits at the level obtained on the basis of the contribution paid. The pension schemes are fully funded.
  • PKA is therefore similar to an insurance company and is subject to EU life directives and national insurance legislation. However, it differs from an insurance company because it is owned by members rather than shareholders.
  • The various occupational pension funds do not compete for members because membership is mandatory and determined according to education and employment. As a result, co-operation is possible among several occupational pension funds. PKA is an example of this. The actual administration fee is between 2% and 3% of the contributions paid.