Employers call on the Danish Government to alter the early retirement scheme

The number of Danish employees taking early retirement has increased dramatically of late and has reached such a level that it has alarmed employers to the extent of urging the Government to take legislative action to stem the flow. The Social Democratic Government has refused to do so, arguing that it is the responsibility of companies themselves to formulate and implement policies on the retention and gradual withdrawal of older employees from the labour market. Discussions on this issue are continuing and are likely to come to a head at the forthcoming budgetary debate in autumn 1997 and might even become an issue at the next general election. This feature outlines the nature of the issue and considers the arguments that surround it.

Since the original introduction of early retirement schemes some 20 years ago, the number of employees aged 60-66 taking early retirement has more than tripled, from about 40,000 in 1980 to 127,000 in February 1997, equal to more than two-thirds of everyone in that age group. In 1976 more than 75% of all men remained in the labour force until they were 65; today only 28% stay on until they become entitled to a pension at 67. Over the course of the last 20 years the average age of those taking early retirement has fallen from 63 to 60. TheMinistry of Finance estimates that there will be 160,000 recipients of early retirement benefits by 2005, whereas theDanish Employers' Confederation (DA) estimates that this figure will double to some 260,000 people. The wide difference of opinion between the government estimates and those of the DA accounts for the disagreement as to whether legislation is needed to stem the flow of those opting to take early retirement.

All those in the 60-66 age group with 20 year's membership of an unemployment insurance scheme are entitled to early retirement benefit. Employees who are 60 are entitled receive the maximum benefit of DKK 2,625 per week for the first 2.5 years, and 82% of the maximum benefit thereafter until they are of pension age at 67. In order to make the scheme more attractive, a person aged 63 who is still is entitled to unemployment benefit, will receive the maximum benefit until the age of 67.

Employers' criticisms

According to the DA, the original intention behind the early retirement scheme is now outmoded. The legislation was originally intended as a labour market instrument which sought to increase the redistribution of labour and enable younger unemployed people during the 1970s recession to enter the labour market and allow older employees to take early retirement to make way for their younger counterparts.

The DA points to a 1996 OECD study(Economic Outlook 59) which suggests that a large-scale redistribution of jobs by offering incentives to take up early retirement does not in fact reduce unemployment. The assumption that a large number of new entrants can replace older and experienced employees is naive because the labour force is highly heterogeneous and is becoming increasingly specialised.

Apart from this fundamental critique, the DA examined whether early retirement is mainly taken up by employees who are forced to leave because of deteriorating health. According to a report from the DA entitled Senior på arbejdsmarkedet - muligheder og barirerer, only 5% retired due to ill health. On the contrary, more than 70% of those taking early retirement had no health problem at all and 80% decided to opt for early retirement simply to have more leisure and to spend more time with their families. Although the majority of those taking early retirement are blue-collar workers, early retirement among white-collar workers is also following the same pattern. From 1988 to 1995, 55% more white collar workers and 40% more self-employed people in the 60-66 age group retired early.

The DA therefore views the scheme as a "blunt" labour market instrument and claims that it can be more accurately described as a welfare privilege that Denmark can no longer afford. The DA claims that the future Danish labour force will be characterised by fewer new entrants, a rapidly ageing labour force and a much smaller workforce, as a result of radical demographic change. Moreover, if the present pattern of withdrawal from the labour market continues there are likely to be labour shortages and bottlenecks, which in turn will lead to an upwards wage-spiral resulting in lower competitiveness and a loss of jobs and tax revenues and a reduction in welfare provision.

The DA has therefore called on the Government to gradually change the age limit from 60 to 63 and introduce other publicly financed forms of early retirement schemes such as partial early retirement (delefterløn) and partial pensions (delpension). There is some measure of agreement between the DA, the LO trade union confederation and the Government that the development of company-based policies on early retirement, the so-called Seniorpolitik, represents a workable possibility. Such company-based schemes would enable those who wished to work towards retirement on a gradual basis to do so by a reduction in their working hours and a reorganisation of their workload.

Government response

Whilst the Government has totally refused to alter the age limit, it is nevertheless willing to make partial early retirement schemes more attractive and less bureaucratic. Such partial early retirement schemes have only been taken up by 1,100 employees so far. They allow for a more gradual withdrawal by way of a 25% reduction in working time compensated for by a payment of 82% of the maximum unemployment benefit for each reduced working hour.

The Danish Government faces a dilemma. If such partial early retirement schemes become more attractive they will merely contribute to the flood of older employees leaving the labour market. Instead, the Government has put its trust into company-based initiatives -Seniorpolitik. In the 1996 Budget, DKK 30 million was earmarked for such initiatives. The Ministry of Labour has compiled a guidance document on how to get started and has arranged five seminars on Seniorpolitikwhich will be attended by practitioners and experts in the field. Later this month, the Minister of Labour, Jytte Andersen, will ask the social partners to appoint members to a new tripartite committee on Seniorpolitik. The objective of this new committee is to advise the Minister and to disseminate information on best practice.

Minister Andersen has said: "I expect at lot from the initiatives, but it is also essential that others play their part in the debate - we will not get very far unless companies are willing to implement the changes and older employees take advantage of the new schemes".

Commentary

The present Government is unlikely to make any legislative changes. The issue of early retirement is likely to emerge as a central issue in the next general election as part of a wider debate on the welfare state in Denmark. However it is also true to say that demographic change and the prospect of a rapidly ageing labour force will represent a major challenge. This is a challenge which faces politicians, the social partners, companies and older employees themselves. It is a challenge on how to achieve a balance between legislative and agreement-based options for older employees on the one hand, and company-based policies on the other. (Kåre FV Petersen/FAOS)

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