Denmark stands out in Europe, with pension savings among the highest in the world compared to GDP.
The strong, savings-based Danish pension model not only supports stability in public finances and pension funds. It also supports the income levels for Danish retirees and contributes to finance long-term investments in Denmark and abroad. This was highlighted by Danmarks Nationalbank’s Governor Signe Krogstrup during a debate on the Savings and Investment Union (SIU) at the Eurofi event in Copenhagen on 18 September.
A distinctive feature of the Danish pension system is that it was developed through successive collective labour agreements rather than legislation. This agreement-based approach has supported trust and broad participation in the system.
A major reason for the system’s success is that auto-enrolment and “mandatory” pension contributions were agreed years ago. This has led to the high coverage and strong results we see today, aligning the system with the SIU strategy for pensions.
When the savings-based pension system was expanded in the 1980s to cover most of the labour market, it mainly offered guaranteed benefits. Over time, however, these guarantees have gradually been removed. Savers now assume the market and longevity risk to a higher degree. While this has shifted risk from pension funds to savers, it has also supported the system’s stability and solvency and resulted in more risk-taking – such as investments in stocks, private equity and infrastructure rather than bonds.
For savers to accept this risk, it has been key to ensure that pension savings are invested solely to achieve the best possible risk-adjusted return. The prudent person principle remains a cornerstone of trust in the Danish pension system. It also means that while the system channels savings into investment, firms must be competitive and innovative to benefit. Across Europe, implementing the Competitiveness Compass is therefore key.
Read more in the analysis about the road to more risky assets in the Danish pension sector.
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