The population of Denmark, and of many other countries, is aging, threatening the sustainability of theretirement systems. However, Denmark has implemented a reform to make the welfare state robust to the aging of the population. For this purpose, retirement age has been indexed to life expectancy. In other words, as individuals are expected to live longer, they will also have to work longer. Current Danish policy mandates a gradual increase in the statutory retirement age (folkepensionsalderen, referred as retirement age). Since 2019, it has been increased from 65 to 65.5, and it is scheduled to rise in steps to 70 in 2040 to ensure that individuals are expected to live 14.5 years in pension on average. To be implemented, the reform needs to be continuously supported (each time the retirement age is raised) by a majority in the parliament.
In a project funded by the ROCKWOOL Foundation, researchers from the Interdisciplinary Centre on Population Dynamics (CPop) at the University of Southern Denmark (SDU) investigate two major challenges to this plan:
- As the retirement age rises, the risk of death before retirement age may increase. The researchers analyse the risk of dying between age 50 and retirement age. Some segments of the population face higher risks of such early deaths. If these risks increase, the indexation may be harmful to these people.
- If, however, survival at older ages improves more rapidly than anticipated, then the retirement age may have to be increased even further than planned to preserve the economic sustainability of the welfare state
The two challenges are discordant. If retirement is postponed to higher ages, fewer people may survive to reach this age. On the other hand, if the economic sustainability of the welfare state is to be maintained, retirement may have to be postponed by more than anticipated. Research results of the study provide factual findings to deepen understanding of the two conflicting challenges. It also provides a comparative analysis with another Nordic country: Sweden.
Note: The project was conceived and led by James W. Vaupel. After his sudden death, the role of principal investigator was taken over by Cosmo Strozza.
The research is supported by the ROCKWOOL Foundation through the funding for the project “Challenges to Implementation of Indexation of the Pension Age in Denmark” .