Cradle-To-Grave System Gets Rocky in Denmark

In addition to free education and universal health care, the linchpins of the welfare state model, Denmark provides an extensive list of social benefits enjoyed during a lifetime regardless of income. These include government-sponsored child-care checks, student stipends, unemployment benefits, early retirement funds, elder care and a state-funded pension program.
But in recent weeks, in light of the credit crunch and a growing public debt problem, Denmark’s generous public spending has come under scrutiny. Specifically, the state-funded pension program — which costs 96 billion kroner, or $16 billion, annually, an estimated 5.5% of gross domestic product — has fueled a discussion about the paradox of Denmark’s high earners receiving many of the same social benefits as the very neediest citizens.
The comments come as Denmark, long heralded as a model for economic and social stability, scrambles to reduce a public expenditure that last year surpassed 59 percent of G.D.P., clocking in at over 1 trillion kroner, while working to decrease a public-sector debt equal to 42% of G.D.P.
Mr. Bendtsen has suggested that anyone receiving more than 500,000 kroner annually from a private pension should be excluded from the state-funded program. The Danish Insurance Association, an industry group, calculates that there are only 4,000 people who fall into this category, or 1 percent of the 400,000 Danes who have private pensions.
Mr. Bendtsen’s trial balloon has attracted responses from several quarters of Danish society, and the comments have a similar thrust: Something must be done, but not at the expense of the social model.
Denmark has the highest overall tax burden of all O.E.C.D. member countries, with taxes to G.D.P. reaching 48.2% in 2009. Furthermore, numbers from the O.E.C.D. show that Denmark has one of the highest marginal tax rates for high earners — 67% — when consumer taxes are included.

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High pensions in Denmark

The typical American receives just 45 percent of his preretirement wage through Social Security, according to the Organization of Economic Cooperation and Development. By contrast, a worker in Denmark, which has one of the most comprehensive and generous retirement arrangements in the world, can retire with a state pension that is 91 percent of his salary.

“The financial crisis hasn’t affected me,” says Jens Erik Soerensen, a 63-year-old in Hellerup, Denmark, who works as a researcher at Chempilots, a Danish company that develops polymers for use in the medical device industry.

Mr. Soerensen has calculated that when he retires, the combined disposable income that he has with his wife (Lone, also 63, who retired this year from her job in TV production) will fall by about 20 percent. The couple will also continue to benefit from universal health coverage.

“I think we can survive without changing our lifestyle, at least until 75,” he said. After that, he might have to dip into personal savings.

Of course, such a system comes with tradeoffs. To help pay for generous state pensions, Danish workers have one of the highest tax burdens. The population is also aging, meaning that there will be fewer working people to pay for the pensions and care of a graying society.

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