The chief economist of Danish pension provider Velliv has spoken out about the far-reaching set of reforms to the pension system proposed by an official commission yesterday, warning of the labour market challenges one of the main ideas could spell.

Chaired by former minister of employment Jørn Neergaard Larsen, the Commission on Retirement and Decreasing Working Ability (Kommissionen om tilbagetrækning og nedslidning) yesterday presented its report two years after the panel had been tasked with recommendending improvements to the pension system in response to a number of problems it was facing.

Jens Christian Nielsen said: “The Commission’s proposal for a change in the state pension age strikes a fine balance between what is good for public finances and good for the individual.”

However, the proposal would pull 80,000 people out of the workforce, he said.

“And that’s a challenge. The Commission is silent, but answers must be found,” said Christian Nielsen.

“We want greater flexibility, with the individual at the centre, so that Danes are encouraged to work longer. This applies to both the time before and after retirement age,” he said.

Velliv was referring to one of the most eye-catching proposals made by the Commission, namely the idea of revamping the life expectancy indexation of the pension age in Denmark – the rules for which were laid down in the 2006 Welfare Agreement.

The proposal includes many details, but the main principles are that after 2045, adjustments to the pension age should be based on life expectancy at the most recently-adopted pension age, and that only 80% of the increase suggested by any rise in life expectancy at that point should actually be implemented.

In its report, the Commission said this idea of a more lenient indexing of the pension age would gradually reduce the labour supply compared to the current scenario, and reach a point in 2100 where there would be 80,000 fewer full-time employees compared to what would be the case if today’s rules continued.

Velliv also said it wanted to commend the Commission on its proposal to make it possible to put “ratepension” payments on pause, which the firm said would make it more attractive for the elderly to work.

Also winning applause from the pension provider was the recommendation to improve incentives to save up for retirement by increasing tax deductions for payments into pensions.

But Christian Nielsen said Velliv disagreed with the proposal that ATP should administer a new mandatory pension scheme for people who did not currently save for retirement.

“It is runs completely contrary to free choice for consumers,” he said.

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