Insurance and Pension Denmark (IPD) has come up with a new analysis which shows the system of labour-market pensions launched 35 years ago has increased equality in the Nordic country – and will continue to do so in the next three decades.
The industry association said on the release of the report: “The pension system is contributing to income inequality among pensioners in Denmark being relatively low, and lower than for the rest of the population.”
In the analysis, entitled “Low inequality in the pension system today and in the future”, IPD said the combination of a universal public pension and supplementary payments from people’s own saved pensions supported a relatively low level of income inequality among pensioners.
Kent Damsgaard, chief executive officer of IPD, said: “It is largely due to the agreement of 1987, which continues to have the effect of more and more Danes across education and jobs being able to retire with a solid income base in old age.”
The joint declaration of 1987 of the labour-market parties and the government of Poul Schlüter was the foundation for the introduction of compulsory labour-market pensions for large parts of the private-sector labour market, IPD said.
The association said its analysis showed that income inequality, measured by the Gini coefficient, was 0.26 among pensioners in 2020, while among the rest of the population it was 0.30. A Gini coefficient of zero expresses perfect equality while a coefficient of one means maximum inequality.
The analysis measured the effect that several types of pension income, as well as tax, had on the Gini coefficient for Danish pensioners between 2000 and 2020. Figures in the report showed that out of capital income, state pension and ATP, own pension and tax, it was only an individual’s own pension that had had the effect of reducing the coefficient – the others had increased it.
However, a graph in the report shows that the Gini coefficients of both Danes as a whole and Danish pensioners have increased over between 2000 and 2020, meaning inequality has increased for both groups over the two decades.
IPD also said its study showed the trend towards larger pensions for Denmark’s middle-income group would continue for the next 30 years, with pension assets increasing across the board, but becoming more equally distributed across education groups.
Today, it said, 40% of total pension assets in Denmark had been accumulated by just 10% of the population, but the lobby group said that share would drop to 25% by 2050.
Damsgaard said that when labour-market pensions had originally been established, sceptics had feared the development would weaken welfare and create greater inequality, but he said: “The reality today is exactly the opposite.”
The vast majority of Danes had a pension scheme, he said, adding that the Danish pension system was “absolutely essential to ensure a high degree of prosperity and cohesion in our society”.
Damsgaard said: “We must take those experiences with us in the future when we talk about how we, together, develop future welfare broadly for the benefit of citizens.”
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