In 2006 and 2011, there was a political majority in favour of raising the retirement age by up to one year every five years. The bill was presented based on the fact that people live longer and longer. The retirement age thus follows the actual life expectancy development. But now reality has caught up with politicians, as Danes’ life expectancy increased faster than expected in 2006 and 2011. A more rapid phase-in of the increase in the retirement age is thus on the political agenda in 2017.
When can I retire?
It sounds like a simple question. The fact is, however, that it varies considerably, depending on when you were born. The highest retirement age today is 68 for those born after 1963. This age will probably be increased after the next five-year period. For those born after 1967, the retirement age will therefore be 69.
Unfortunately, the retirement age has become synonymous with the age at which Danes can and must retire. The retirement age is, however, merely the age at which you are entitled to state pension. You can have your savings under your company pension plan paid out up until five years before retirement age.
Many Danish make use of this possibility. This is illustrated by the average exit age from the labour market, which is closer to 63-64 than to the retirement age, which is currently 65 for those retiring in 2017.
More stick than carrot to remain in the labour market
When the retirement age is raised, the public sector generally saves money. This is also the main political objective. Another objective is for Danes to remain in the labour market longer. So far, the debate has failed to take into account the huge private savings that Danes have. Such savings will only increase in the years to come, as more and more people choose to save for their retirement.
If the state pension is the main source of income in retirement, raising the retirement age is nothing but a financial incentive – which means all stick and no carrot. Many Danes will therefore have the opportunity to retire before reaching retirement age and use their private savings made throughout their working lives.
What does Aon believe?
We completely agree that too many years of state pension payments will drain the public finances. It is, however, naive for the political authorities to believe that this will make a vast majority of Danes decide to remain in the labour market longer. In fact, many Danes are able to provide for themselves for a couple of years without state pension.
We would much rather see a carrot being provided for remaining in employment at least until retirement age. This would benefit both the politicians and those willing to spend a couple of years more in the labour market. The additional years would offer the possibility of having an income comprising both pension and salary.
Those who are too worn-out to work until retirement age should also have the opportunity to leave the labour market entirely before reaching this age – whether they are to receive public support or state pension is a matter of secondary importance. It is just a matter of rubbing off expenses on other parties.
So dear politicians: If you want people to remain in the labour market longer, make sure they are with you and not against you. Everything else is naive and unambitious, given that many people can do without state pension and provide for themselves during the first years in the third age.