Page last updated at 14:07 GMT, Thursday, 5 November 2009

Pensions by computer?

By Ray Furlong
BBC Radio 4's PM programme

Mogens Taarup
Mogens Taarup typifies the new breed of active pensioner

As we live longer, Labour and the Conservatives have presented competing plans for raising the retirement age - but imagine if they did not have to discuss it at all.

In Denmark, the question of when people can stop working will soon be determined not by politicians but by a mathematical formula.

Keglebillard is a Danish take on billiards - with a set of skittles in the middle of the table which you lose points for knocking over.

It is a popular game at a pensioners' club in central Copenhagen, where the oldest player is 99.

In the next room the members are pumping iron and training on treadmills or cycle machines.

This is the new breed of highly active Danish pensioner, according to retired businessman Mogens Taarup, himself 75, who runs this centre.

"I retired when I was 62, because that was the age at that time. But that's changed. Now they work right through until they're 70. They're fitter and healthier for longer," he says.

Political wrangling

Working longer is something many Danes will have to do - by law.

Denmark is the only country in the world to have index-linked its statutory retirement age to life expectancy.

The move came with all-party support in 2006, after years of political wrangling. As recently as 10 years ago the retirement age was even reduced.

"We have seen in Denmark for quite a while that there's been an understanding that something has to be done, but there was no action," says Torben Andersen, an economics professor who came up with the idea of applying an index-link.

"There was always this game of let's wait, let's maybe do something tomorrow but never today. So by having the link, it will come automatically."

Mother and child
Some young Danes are worried about having to work longer

Prof Andersen estimates the reform will have average yearly savings of about £4bn, or 2% of GDP. This would be enough to completely cover Denmark's projected budget deficit for 2009. But he is not entirely happy.

Under the reform, the retirement age will rise gradually from 65 to 67 from 2019. The index-link only comes in from 2027 - much later than Prof Andersen proposed.

"Politicians did not have the courage to do it sooner. They said: we'll do it, but we'll have a long waiting period before it kicks in," he says.

"This is very costly, because in this waiting period very many from the baby-boom generation are retiring. The labour force will shrink and there will be more pensioners. So the public finances will be under pressure.

"But I'm not really surprised because I know how delicate and difficult this is politically."

Just how difficult becomes apparent at a parent-and-child club, elsewhere in Copenhagen. The mums and dads here - and eventually their offspring - will all be affected.

Some say they see the necessity for the reform. Most seem to view it as rather unfair.

"I'm not sure this was necessary, because I can imagine that you don't have the energy to work when you get older. You should have a few years to do other things," says 28-year-old mother Ditte.

'Not needed'

Sixten, a 37-year-old video artist, here with his wife and baby, agrees. "If you have a job you like it's good you can continue working, but if you've been working hard all your life you deserve to retire," he says.

"The government doesn't need to do this. They can pay for pensions by increasing taxes or spending less on other things."

So would this work in the UK?

The two countries do have very similar state pension systems: a basic pension with a means-tested top-up. They both spend similar amounts on pensions too - 5.5% of GDP in Denmark, 5.7% in the UK.

Ros Altmann, a former pensions adviser to the Treasury, raised the idea a few years ago. "There was interest," she says, "but no political will to do it."

The Tories have also been flirting with the idea. Nigel Waterson, an MP with a strong interest in pensions policy, said they had discussed it and it would be part of a review the party has promised.

'Keep healthy'

However, he said personally he was lukewarm about it. "It's very mechanistic. Male life expectancy in Glasgow, for instance, is extremely low," he says, "and there are huge variations around the country."

Back in Copenhagen, the most tranquil baby, Clara, ignores the wails of the others as they are weighed and measured.

She is five months old - according to Torben Andersen, under the new system she will retire at 72 or 73.

Her mother, Karoline Egeland, is relaxed about this. "It's needed because we can't afford so many pensioners. Young people live more healthily today: they've seen how their parents smoke and don't exercise. So we know we have to keep healthy and I think we also want to work longer."

Mr Andersen also cautions against being too bleak about Klara's future.

"There's a 50% chance she'll live to be 100, so she'll still have a long retirement. We shouldn't see this as a problem. It's a huge welfare improvement that longevity is going up. It's a very good thing."

The full report is on PM, BBC Radio 4, at 1700 GMT

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