Trap: The pension system is challenged by means testing

01.04.2017
  It is well-known - at least in Denmark - that means-testing of public benefits to the elderly has led to very low, in some cases even negative, effective returns on occupational retirement savings. As an unintended - but hardly surprising - side effect hereof, it now turns out that the contributions to the occupational pension schemes have got a knock. Specifically, this shows up in the recent collective bargaining agreement, just confirmed by membership ballot. One of the key points of the agreement is an option to substitute pension savings for leisure. Given the low return to pension saving it is likely that this option will be chosen by many, especially by workers from low-income and middle-income groups. This would, of course, be equivalent to a fall in the effective retirement age. So, the drawbacks of the Danish pension system, as long pointed out by experts, have now become visible. Lower saving and a falling labour supply are a poisonous combination, with potentially harmful effects on the Danish economy. Therefore, it is urgent to get these design failures resolved. Yes, sooner rather than later. This theme has recently been taken up by the Danish press. I have contributed to the debate - on television as well as in writing. For example, I gave an interview to TV2, see here, and to DR, see here. Also, I wrote a couple of features, as can be seen here and here. Examples of other recent dissemination activities can be found here.


Last updated by: Svend Erik Hougaard Jensen 08/05/2017