Denmark needs to make more effort to lengthen the time its citizens remain in the workforce by giving people better incentives to carry on working beyond retirement age, as well as tackling barriers from the employers’ side, according to the OECD.
In a report on ageing and employment policies in Denmark, the OECD (Organisation for Economic Co-operation and Development) said: “Further efforts are needed to implement a broader strategy to promote longer working lives.”
It said incentives and provisions to retire early had previously been too generous in Denmark, and that this was why the country had been so active in reforming the system in recent years.
“The 2006 Welfare Agreement and the 2011 Agreement on Later Retirement are important steps taken to reduce the burden of an ageing population,” the OECD said in the report.
But now, Denmark needed to strengthen incentives to carry on working, by enhancing work incentives for people coming up to retirement as well as for those beyond it.
The country also had to provide information so that people could make well-informed choices between work and retirement, and make sure transitory bridging welfare benefits were not used as alternative pathways to an early exit from the labour market, the report said.
On the other side of the coin, it said Denmark needed to address barriers to longer employment from the employers’ side.
It said steps to be taken included moving ahead with abolishing mandatory retirement ages, and focusing wage setting procedures more on performance and skills and less on age and tenure, particularly in the public sector.
Even though the mandatory retirement age of 70 for civil servants was abolished in 2008, such limits still exist in the private sector, the organisation said.
In considering how work could be made rewarding for older workers in Denmark, the OECD noted that income testing in the Danish public pension system is quite complex and that it could be difficult for people to see what the consequences their work, saving and retirement decisions would have on their future entitlements.
“Moreover, there can be disincentives to work through high simplicity marginal taxes on work, related to a loss of benefits when incomes are relatively high,” it said.
Industry association Forsikring og Pension (F&P) welcomed the report and especially its focus on the interplay between the effective taxation of retirees and their decisions on whether to continue working.
“It is the high effective taxation on pension savings, particularly close to retirement age, which makes it less attractive to continue working and saving for retirement,” the association said.
Jan Hansen, deputy director at F&P, said the guidelines given by the OECD in the report on how the problem could be solved were in line with proposals the association had already made to politicians.
“The OECD shows all too clearly that the interaction problem can and must be resolved,” he said.
He said Denmark faced serious problems in maintaining its welfare society in the future.
“It should pay to work and save for retirement, also for older people close to retirement age,” he added.