The Pension Jungle: Check your pension savings threshold

Do you have a threshold for your pension? You should consider setting thresholds because nowadays most people depend on a defined contribution pension, except for social security.

For example, someone close to retirement age, 65 for now, can envisage a basic social security pension of around 71,000 kroner, having lived in the country for at least 40 years between 15 and 65, plus ATP of around 24,000 kroner, having worked for 40 years. Given that the expected lifespan after retirement is on average 17 years, this equals a pension pot of around 1.6 million kroner applying simple multiplication.

If this person earns 400,000 kroner, there is four years of final salary in this imaginary pension pot.

Personal pension savings 
Presumably the goal will be to have more pension than social security when retirement comes.

A defined contribution plan at the level of 12 percent per year (for 40 years) and under other reasonable parameters could lead to a similar result – a pension pot equal to almost four times final salary.

On the right track? 
For example, you can apply a half-way threshold, say in your early 40s.  You are ‘on track’ if the value of your pension deposits are around 2.2 times your annual income. If they are less, it is time to speculate and calculate.

Higher contributions, for example 18 percent per year (for 40 years), with the same insurance protection could lead to a pension pot around six times final salary, and you should have 2.6-2.7 times your salary by 40, and by 50 between 4.0-4.1 in order to reach your threshold goal at retirement.

Don’t be surprised if you are falling behind these thresholds, as most people do not contribute fully in their younger years. You then have a choice: do something about it, or lower your expectations and set a lower threshold.


Steen has vast experience as a pension and benefit strategy consultant for major international corporations and high-flying individuals. He was the managing director of Mercer when they first opened an office in Denmark. He possesses a profound understanding of different pension cultures. He is a truly independent professional and blogs at pensions-junglen.dk.




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