Denmark Reaps Rewards of Pension System Economies of Scale

25 May 2012 (PLANSPONSOREurope.com) - As Denmark’s pension system matures the country has reaped the economy of scale rewards of collective agreements, Ole Beier Sørensen, ATP’s Chief of Department, Research & Strategy, has told PLANSPONSOR Europe.

ATP research out this week shows that the number of Danes who do not have a supplementary pension has fallen from 56% in 2000 to 45% in 2010. Sørensen says this is a clear indicator of a “ maturation” of the country’s pension system.

“The big pension reform in Denmark was based on collective agreements from 1987 to 1993. Through collective agreements new pension agreements were set up for sections of the labour market that had not been covered by supplementary pension schemes other than ATP up to that date. Because of that the coverage of labour market pensions increased from some 35% of the employed workforce to 85% which is the current number.

He adds that the country’s labour market has benefitted from its pension model. “The Danish labour market schemes are so to speak “children of the Danish labour market model”. Most of them are multi-employer schemes, and pensions haves long since become a standardised element in collective agreements as well as individual employment contracts. A situation has unfolded where pension schemes are no longer an attraction tool for employers. A notable aspect is that the construction of our labour market pension schemes does not have any impact on labour mobility – there are no vesting problems, no portability problems etc. This aspect of course is very important from labour market perspective and for labour mobility. Labour turnover is not generally very high in Denmark - especially if you look at much more qualified areas of the labour market.  

“By handling the pension issue through collective agreements on the labour market and through multi-employer arrangements it has been possible to create significant economies of scale and to create standardised solutions pertaining to specific sectors or to specific professional groups.”  

But exporting the model would be easier said than done, he adds. “Collective arrangements are part and parcel of the Danish labour market model and significant responsibilities are bestowed on the social partners. The model allows such issues as supplementary pensions to be handled collectively based on negotiations between the trade unions and employer organisations. Very few countries have a similarly capacious institutional infrastructure and therefore the Danish pension model may not be readily exported and implemented in another national context.”  

Graham Simons
editors@plansponsoreurope.com