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How to get Danes to retire later – like Norwegians and Swedes do

| Text: Marie Preisler

Norwegians and Swedes retire later than their Danish neighbours, partly because their pensions keep growing with each extra year they spend in the labour market. This is one of the 11 good reasons a new report highlights for Denmark to learn from what Sweden and Norway do.

Denmark can learn several things from Norway and Sweden when it comes to getting older people to retire later in life, according to a new report from the Danish Ministry of Employment. It underlines that the Norwegian and Swedish pension systems provide a clear economic incentive for working longer. 

People in Norway and Sweden contribute to a public pension for as long as they are working – which means the more years they work, the larger the pension. In Denmark, however, the public pension is a set amount, and its size depends on personal circumstances. The report says this difference in pension systems can explain a lot about why Swedes and Norwegians retire later than the Danes.

Danes retire the earliest

57 % of Danish 60 to 64 year-olds are in work. The figure for Norway is considerably higher at 64 %, and in Sweden a full 68 % of 60 to 64 year-olds are in work. The Danes also lag behind when it comes to working past 65: only 7 % do, while 11 % of Norwegians and 10 % of Swedes work past that age. 

There has been a positive development in the number of older Danish people in work. In 2002, 10 % of Danish 67 year-olds were working, rising to 19 % 15 years later. But Denmark is still far behind Norway and Sweden when it comes to the total number of seniors in work. 

A majority in the Danish parliament has decided to do something about this. A think tank has been established to come up with ideas for how Danes can achieve a longer and good senior working life. The parliament also commissioned a report to find out how Denmark can copy the successes Norway and Sweden have had with keeping older people in work for longer. 

Different pension systems

The report, carried out by the Deloitte, has now been published. It concludes that Denmark cannot achieve the same results as Sweden and Norway just by automatically transferring their experiences. The pension systems and labour markets are just too different. But 11 results from Sweden and Norway are so good that Denmark should be inspired by them. 

Some of the 11 points are targeted at seniors, others focus on creating a good working environment for all, thus preventing early retirement. Denmark can also learn from Swedish and Norwegian experiences of how to create a pension system which makes it economically attractive to postpone your retirement.

Both the Swedish and the Norwegian pension systems are set up so that pension payments become bigger for each extra year spent in the labour market. This has a documented effect. The report quotes studies which show that seniors are more likely to postpone retirement if the size of the public pension payment is linked to the individual’s total payments to the pension system throughout their entire working life. It is also easier to stay on in the labour market in Norway and Sweden without risking a cut to pension payments. In Denmark, earnings above a certain limit will be subtracted from the pension.

A personal decision

Individual workers in all three countries are allowed to decide for themselves when they want to retire from the labour market. Deloitte’s report looked at the most important factors behind people's decision to carry on working or to retire. How important is their health and work satisfaction levels? How long does a worker expect to live and remain healthy? What is the attitude to senior workers in a workplace, and what education and skills development is offered to them? 

The report exposes marked similarities and differences when senior workers in the three countries must make that important decision about when to retire. People over 50 generally express a high degree of job satisfaction in all three countries. Around nine in ten are happy with their working conditions. But there are major national differences in how senior workers assess their own health. On average, Danish seniors are less content with their own health situation compared to seniors in Sweden and Norway, according to data from Eurostat which have been used in the report. 

At the same time, Danish seniors are considerably less likely to link their health issues to their work compared to seniors in Norway and Sweden. 7 % of Danish senior workers say their health problems are related to their work, while Norway has more than double that figure (15 %) and in Sweden nearly three times as many say the same (20 %).   

The view of senior workers is generally a positive one in Denmark. Yet skills development for seniors is less common in Danish workplaces than in Swedish and Norwegian ones. In Denmark 24 % of workers over 65 take part in work-related skills development. In Norway the number is 27 % while in Sweden it is 28 %. 

An advantage to work for longer

The pension system plays an important part when the individual worker decides to say goodbye to the labour market, the report concludes. Unlike Denmark, both Sweden and Norway have had pension reforms which created a system where it pays to retire later. Sweden introduced an income-related pension back in 1998, and Norway’s major 2011 pension reform also made it more attractive for senior workers to stay in the labour market. 

All three countries have public pensions, labour market pensions and voluntary private pension funds. In addition to that, Denmark has an early retirement scheme – but also incentives not to make use of it, or to postpone making use of it. There are also incentives for carrying on working while simultaneously benefiting from the early retirement scheme.  

Danes can also postpone public pension payments up to ten years, and that way increase their pension. Just before the 2019 parliamentary elections, parties agreed on a new type of senior pension earmarked senior workers who have poor health after many years in the labour market.

All three countries have also introduced various measures to make workplaces more senior friendly and prevent exhaustion. Workplaces across the three countries have also introduced a range of senior policies, including performance reviews for seniors, extra days off, the reallocation of tasks and skills development. 

The report has not been able to establish whether Danish seniors would have wanted to carry on working if Denmark followed the examples of Norway and Sweden – because none of the three countries have sufficient documentation for whether existing measures aimed at holding on to senior workers in fact do have a positive impact on the labour supply.

Differences between pension systems in Denmark, Norway and Sweden

Denmark:

The retirement age is between 65.5 and 68, depending on the year of birth. People who have saved up for early retirement can retire three to five years before reaching the official retirement age. In addition to the basic state pension, employee pension schemes are common. Private pension schemes are also available. The Danish pension system offers a range of incentives aimed at keeping people who have reached retirement age in work for longer, including a premium for those postponing their retirement, increased deductions for earnings and tax-free premiums for seniors.

Norway:

The basic state pension is available for people who have turned 62. It is possible to claim only some of the pension, and it can be combined with earnings without being cut. Norwegian law says 18.1 % of earnings should be paid into a personal pension pot (albeit with an earnings ceiling). The size of the pension depends on how much has been paid in during a working life, which again acts as an incentive to stay in work for longer. Nearly everyone has an employee pension scheme in addition to the state pension. To keep seniors in work, people over 69 pay less social security, which means they get to keep a larger proportion of their wages. 

Sweden:

Swedes can retire at 61, and can chose to take out only parts of the pension. 16 % of taxable income must be paid into the public pension scheme (albeit with an earnings ceiling). The size of the pension depends on how long someone has been working and paying into the system. This acts as an incentive to stay in work for longer. Employee pension schemes are common in Sweden, and private pension schemes are available. People over 65 pay less tax, in the hope they will work for longer. Employers also pay less employer’s tax for this group of workers, to help them keep and employ senior workers

Source: ”Nordic comparison of labour markets for seniors”, Deloitte for the Danish Ministry of Employment, 2019.

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