Introduction to Retirement Age
The Danish Parliament passed legislation to increase the retirement age on May 22. The law, which was approved by 81 legislators with 21 votes, set the retirement age for all citizens born after December 31, 1970. Last year, the 47-year-old Social Democratic Prime Minister stated that she would be open to the system as soon as the official retirement age was 70 years old.
Comparison with Other Countries
International comparisons show how different the age is regulated. In some countries, people work even longer than legally obliged. For example, in Denmark, more elderly people are returning to work. This trend is not unique to Denmark, as many countries are facing similar challenges with their pension systems.
Germany’s Pension System
The new government of Germany is still trying to find out how to deal with the country’s struggling legal pension system. The Chancellor warned that "the way things are today can only take a few more years". A former government advisor suggested that Germany should quickly increase the retirement age to 70 so that they can at least catch some of the Baby Boomer generation.
Pension Financing Models
Pension financing in Europe follows two main models: the Bismarck model and the Beveridge model. The Beveridge system is a social model that offers universal coverage and is tax-financed. The Bismarck model, on the other hand, is an insurance-based system in which both employees and employers pay into a fund.
Demography and Work
The German-based system in Bismarck is increasingly in stress due to demographic changes. With an increasing age of the population and workforce, there are more pensioners and fewer people financing the social security systems. People are living longer due to increasing life expectancy, which means they are drawing pensions for more years.
Advantages of Longer Work
There are advantages to working longer. Many people feel good and are well-committed to their jobs in their 60s, so they like to continue working, pass on their knowledge, and appreciate interaction with younger colleagues. Employers benefit from the retention of experienced employees and established routines, which can also help alleviate the skilled labor shortage in Germany.
Personal Decision in Retirement
If you look at international statistics, it turns out that the right age rarely aligns with the work of people. In most cases, people retire earlier because their bodies cannot keep up due to burnout or in creative professions. In some countries, such as New Zealand, Japan, Sweden, or Greece, people often work beyond the official age.
Financial Security
The threat of poverty in old age could be reduced if pensions were high enough to ensure financial security after a long career. However, this would require money that the pension system is currently missing. On the other hand, increasing premium levels would restrict the ability of employees to save privately for retirement. The so-called gross replacement quota, the ratio of pension benefits to the final salary, plays an important role in people’s decisions. If this gap is too wide, some employees cannot afford to retire.
