European Trade Union Institute, ETUI.

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Pension reforms in Denmark: background summary

The Danish pension system is based on a balance between public financing (state pension) and private financing (supplementary occupational pensions and optional private pensions). However, supplementary occupational pensions will eventually become the main source of income for retirees, even though, for most, the state pension will still represent a significant part of their pension income.

Context

  • A full universal state pension (Folkepension) is granted to those individuals who have lived in Denmark for 40 years between the ages of 15 and 65. Like almost all income in Denmark, the state pension is taxable.
  • The supplementary compulsory pension scheme (ATP) initially covered those individuals in active employment who were working at least 9 hours per week. Since 2003 it has also benefited other categories of the population (jobseekers, people on sick leave, women on maternity leave, etc.). As a result, nearly 90% of Danes now pay into this scheme. It is funded by contributions paid by the employer (2/3) and employee (1/3) in both the public and private sectors. The contribution amount depends on the number of hours worked. The pension benefit originating from the ATP is marginal compared to the pension benefit from the other schemes.
  • Supplementary occupational pensions were introduced in 1993 through collective agreements and cover around 85% of the Danish workforce. They are funded by contributions from employers (2/3) and employees (1/3) and managed by pension funds.
  • Around one-third of Danes apparently have an optional private pension according to figures provided by the SFI (The Danish Centre for Social Research). A new scheme was introduced in 2012, which is comparable to a retirement savings plan (Aldersopsparing). 
  • An incapacity pension exists and can be received by anyone aged between 18 and 67 who, for health reasons or due to difficulties with workplace integration, cannot work. The decision to grant this pension is taken by the municipality or the rehabilitation or pension commission.
  • A worker can also retire early if he or she makes voluntary contributions specifically for this purpose through his or her professional trade union. Early retirement can be accessed from the age of 60 and requires around 30 years of contribution.

Recent reforms

  • The Danish pension system is regarded as one of the most financially robust. However, to ensure its sustainability, Parliament has adopted several reforms that the unions have struggled to accept. 
  • One law, adopted in December 2011 as part of the ‘2020 economy plan’, reformed the retirement scheme involving capital withdrawals due to budget considerations and included: 1/ The increase, from 2014, of the minimum early retirement age, which is planned to gradually rise to 62 years in 2017 and 64 years in 2023 (compared to 60 previously). 2/ The gradual increase, from 2019, of the retirement age, which is planned to rise to 67 years in 2022 (compared to 65 years).3/ Continuation of the principle of indexing the early retirement and standard retirement ages to life expectancy, adopted in 2006. 4/ The gradual reduction (between 2018 and 2023), from five to three years,of the duration of the early retirement scheme.
  • Under the principle of adjusting the statutory retirement age based on average life expectancy, on 18 December 2015 Parliament adopted a bill increasing this age (Folkepension) from 67 in 2022 to 68 in 2030.
  • As of 1 January 2016, the law stipulates that a collective or individual agreement can no longer set a compulsory retirement age of 70 years.
  • The law adopted on 30 August 2015, known as the ‘Lov om ændring af lov om social pension’, unifies the residence conditions for refugees.
  • The Law of 26 August 2015 (Harmonisation of rules concerning establishment of period of residence for statepension) provides that the residence conditions apply in the same way for refugees as for other immigrants, as well as for Danes living in other countries, and that refugees can no longer benefit from more favourable arrangements, in this case inclusion of the period of residence in the country of origin.

Union reactions

  • In 2050 Danes will be the last to retire in the EU. The trade unions claim that there is a risk of the current system of pension funding being abandoned by workers, who will try to save in a different and no doubt better way so that they can retire early, as well as a risk of inequality between skilled and unskilled workers, with the latter having a clearly lower life expectancy.
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