Pension as an independent freelancer

As independent freelancer many questions and completely new areas can arise that you as an employee normally take for granted. 

Now you have to be in control of most things yourself (read: everything), and one of the very big and hotly debated areas is pension as an independent freelancer.

Is it necessary to make a pension? How much should you pay into a pension as a self-employed person, and which pension scheme should you actually choose?

There can be several things to decide on and many different opinions, but here you will get more information about pension as a self-employed person, so that you can form your own and get your pension savings started.

Set aside for the future

As a self-employed person, you have many things to think about, and if you are just starting out, pension may not be the first thing that comes to mind.

In fact, more than half of the self-employed end up saving less than 5% of their income for retirement.

It is entirely up to you as an independent freelancer whether you choose to make a pension savings or not.

As a self-employed person, you will have the right to a national pension in the same way as everyone else, but since you are not an employee, you will not automatically have an occupational pension.

It is therefore a good idea to save for the pension itself, as the ordinary one public pension too few reach the future they dream of.

In general, it is recommended that you save so much that what you will receive when you retire, corresponds to approx. 80% of what you live on today.

When it comes to pension savings, however, there are several options and different ways to do this, and it is important that you choose the solution that suits you best and adjust it along the way.

Contribution to pension as a self-employed person

What is the right amount to pay into pension?

It can vary from person to person, and you can choose to set it according to the lifestyle you want to lead when you retire, your current age and desired retirement age, and in relation to how much you have the opportunity and desire to put aside.

As mentioned earlier, as a rule of thumb, you should set aside so much that it corresponds to the fact that you will be paid approx. 80% of what you live on now.

As an independent freelancer, however, income can fluctuate – especially at the start.

Some self-employed freelancers therefore choose a pension scheme where you can quickly and easily adjust the payment from month to month or temporarily pause the pension savings.

This means that in this way you can pay more in the months when the income is high and less when it is lower.

Depending on which pension scheme you choose, there may also be a limit on how much you can pay into your pension per year. If you choose e.g. to create an installment or termination pension, you can pay a maximum of DKK 59,200 with full deduction in 2022.

Different forms of pension as a self-employed person

In addition to deciding what amount you want to pay into your pension as a self-employed person, you must also have decided which type of pension suits you.

If you simply put the money aside in a regular bank account, there is a good chance that it will lose value in line with inflation. 

The vast majority therefore choose to invest their pension savings in e.g. shares, funds, securities or other through a pension scheme.

In this way, you can avoid inflation reducing the value of the savings over time and even achieve a return and thus increase the pension you will be paid in the future.

Mainly, a distinction is made between 3 different types of pension:

• Installment pension:

Installment pension is the most common pension savings. It is a private retirement savings account that will be paid out in installments (like a regular salary) when you choose to retire.

• Annuity (for life or termination):

A lifetime annuity pension is an insurance policy that gives you a continuous payout for the rest of your life – regardless of how long you live. If, on the other hand, it ceases, it is somewhat similar to the installment pension and is also paid out over a number of years.

• Retirement pension:

If you would like to have your pension paid out in one lump sum, you should choose the retirement pension. Most often, people choose an old-age pension to supplement the installment pension savings if they want to pay more into the pension than the permitted limit for the installment pension.

Most therefore choose the installment pension, which is the most widespread pension savings. 

Get started - Create your pension savings

Unless you have a good handle on the stock market and are ready to invest your pension savings yourself, you can choose to either set up a savings account with a bank or a pension company.

The bank or pension company you choose will have professionals employed to invest your pension savings for you based on your wishes. 

Many prefer to continue to have an influence on what the pension savings are invested in, such as green energy etc.

Once you have set up the pension savings, you can choose to set up an automatic transfer, so you are sure to get paid into your pension savings every month.

Pension as a self-employed person and tax deduction

Another thing that is an advantage of having set up a pension savings is that you can now get a tax deduction for the contributions to your pension scheme.

As long as you set up your pension savings with a bank or a pension company, you can get a tax deduction for the payments to your pension. This means that you both get to build up a pension for the future and that you have to pay a smaller amount in tax at the same time.

When you have created your pension savings and determined the amount you want to pay in each month, it is a good idea to enter this in the advance statement as a tax deduction for the payments.