Voluntary early retirement not too expensive

The Danish voluntary early retirement scheme is under pressure. It is designed to offer people partial retirement from the age of 60. The government and employers think it may become very expensive for the Danish society in the long run.

But now a new report from the Association of Unemployment Insurance Funds in Denmark, "Myths surrounding the voluntary early retirement scheme", shows that most accusations against the scheme are based on myths. The early retirement scheme is not at all as "expensive" as some will have it. Nor will it be in the future.

In Denmark you are entitled to a state pension from the age of 65. In the mid-1990s the government introduced new legislation allowing anyone from the age of 60 to benefit from the flexible voluntary early retirement scheme, which entitled them to the same money as people claiming unemployment benefit – that is, more money than if they received only the state pension.

Getting the facts wrong

23 per cent of Danes are over 65. In 2040 there will be 46 per cent – a large number, but on closer examination another picture emerges. The same applies to the total number of people who are expected to take advantage of voluntary early retirement. The myths surrounding voluntary early retirement are based on bad or plain wrong data, and the scheme is by no means a threat to the welfare system as some have claimed.

"There are many other areas which are more relevant to focus on if you want to tackle problems that might emerge in the long run", says Rasmus Hviid, the author of the report and project coordinator at the Association of Unemployment Funds in Denmark.

"It is true that the group of older people is growing, but that will shrink again. And if you decided to abandon the voluntary early retirement scheme now, you wouldn't see the effects for 15-20 years, when far fewer will actually need that kind of retirement.

"If you simply bring today's figures forward, we will have 160.000 people on voluntary early retirement in 2020. But we have calculated that realistically, there will only be around 110 -120.000.

Burnt-out employees

One of the myths will have it that people will take advantage of voluntary early retirement without really having the need. The report shows the people who do use the scheme are, to a large extent, blue-collar workers with short educations, as well as people who started working at a very early stage in life – those who typically suffer from "burn-out". Only around 14 per cent of those on voluntary early retirement are white-collar workers. People with longer educations do not use the scheme to a large extent.

"The voluntary early retirement is a good alternative for older people and those who are burnt-out, and it is better than social welfare money. The older workers are the last to feel the benefits of economic upturns. Also, the voluntary early retirement money can be used to gradually end your working life, says Rasmus Hviid.

A lot of money to be had

The Danish Association of Local Authorities says there will be 100.000 fewer workers in 2030.

"That will only happen if nothing is done. For example, we have half a million people on early retirement, and if just 10 per cent of them got back into work, that would be 50.000 people. There is really a lot to be gained here, especially if these people are not very old. The same goes for unemployed immigrants from nonwestern countries. If they get onto the work market from an early age, we can save a lot.

"That would have much greater economical value than for instance a craftsman who works for perhaps a few more years, says Rasmus Hviid.