Economic Development in Denmark Before and During the World War/Development of Old-Age Pensions
Development of Old-Age Pensions
While in this branch of social insurance there is no great divergence from the German system, although a considerably wider scope has been given to private initiative, in the matter of old-age pensions, on the other hand, a quite different arrangement is to be observed.
The question of voluntary old-age pensions has been under consideration in Denmark for many years. The Workmen's Commission of 1875 proposed that the state should establish an old-age pension fund for the poor. When the matter was debated, a majority was in favour of making it a voluntary fund, to which the state and the municipality should contribute sums equal to the contributions of the insured, but not exceeding 20 kroner per annum per capita; and for certain workers (servants, factory hands, and apprentices) between the ages of fifteen and twenty, employers should make certain payments. A minority, on the other hand, insisted upon a full compulsory insurance system. In 1880-1881 there was discussed in the Folketing a private bill which was closely connected with this subject and which proposed that a certain amount of insurance should be compulsory for all persons between the ages of fifteen and twenty-two, and that further voluntary insurance should also be allowed; also that members of the working class between the ages of twenty-two and forty-two should receive allowances from the state and the municipality to aid them in the purchase of an annuity payable at the age of sixty. The bill, however, did not meet with general approval. Moreover, a proposal made by the government in 1883 for the introduction of voluntary old-age insurance with aid from the state for persons between the ages of eighteen and forty-five suffered the same fate. The latter bill was brought in again the following year in an amended form, but with a similar result.
It is not surprising that things came rather to a standstill in this matter. In the eyes of most people old age is a very remote condition, and those who are not unusually provident are far more attracted by matters of immediate concern. Insurance against sickness is to them a far more vital matter than an old-age pension; and as soon as a man has married and settled down he thinks first of providing for his wife and children. This is so much more the case because the annuities obtained seem to most people too small to compensate for the necessary sacrifices.
The discussion of old-age pensions was, nevertheless, continued on the basis of the government proposal. But at the end of 1890 two leading members of the Folketing, Messrs. Berg and Hörup, brought in a very different bill for the establishment of old-age pensions for the poor. This bill proposed that the poor should be allowed to purchase annuities at low rates, but also that a permanent grant of annuities should be made for all persons over sixty-two years of age who had no means of support, the necessary funds to be raised by a tax on liquor. Soon afterwards a bill was brought in from another quarter proposing a system of old-age pensions partly built upon compulsory insurance and recommending a beer or malt tax to cover any grant made by the state. The matter was now ready for decision; and when ten members of the Folketing presented as an alternative to the Berg-Hörup proposal a bill entitled 'old-age pensions for respectable poor people outside the poor-relief system', it was passed by both Houses with a surprising unanimity and became a law after a lapse of only one month. This act, passed on April 9, 1891, has since been amended, but it still retains its original character and has played a very important part in Danish social policy. The principle embodied in it is very simple; the only hint of a claim on the ground of former self-support lies in the condition that the person who receives help shall for some years have been independent of the poor relief system. The act entitles every one who has reached the age of sixty, and is incapable of supporting himself and his family, to a pension of sufficient amount to provide the necessaries of life, together with medical treatment and attendance in case of sickness. The support may be given either in money or in kind, the amount to be fixed by the municipality concerned, with the understanding that one-half shall be paid out of the state, but that this half shall not exceed a total of 2,000,000 kroner.
This act may be looked upon as an extremely bold step, since nobody could predict what heavy burdens it might impose upon the public. The enormous increase of expense gradually incurred in the years to come would perhaps have alarmed the proposers, had they realized at the time how much money this single measure was destined to cost. But the act contained two important advantages. In the first place, it avoided the costly and troublesome apparatus of insurance with its compulsory payments, which did not seem to offer any real return for all the trouble and pecuniary sacrifices involved. In the second place, it could enter into operation immediately, or upon very short notice, whereas an annuity started now would be payable only after a lapse of many years, and would, moreover, be far less satisfactory for the reason that its calculations would be based on the incomes of the present generation, which would perhaps not begin to receive its payments until nearly half a century later, when the exigencies of life and the purchasing power of money would probably have changed to such a degree that the amounts paid would be entirely insufficient. These two advantages of the Danish system are very apparent when the latter is compared with the German Klebegesetz with all its complicated apparatus.
Naturally the act was severely criticized by economists. On the one hand, it was asserted that it involved a certain arbitrariness in the amount of the annuities. One municipality might be very niggardly, another very liberal. The Berg-Hörup bill would have answered better, it was contended, in that its pensions would be fixed amounts, whereas those of the new bill might easily create very great burdens. The other objection was of a more serious nature. There was grave danger, it was claimed, that the people would tend to become careless and extravagant if they were assured support in their old-age. Moreover, persons who had denied themselves things in order to save a little money would receive nothing; while those who had spent all their earnings would be taken care of by the state and the municipality. There seems to be no special occasion to fear this, however, especially after a liberal amendment having been made enabling the people concerned to have a legacy, their dwelling, or a little income from an annuity. Even now municipalities may, on their own initiative, introduce a system of fixed rates, as Copenhagen has done.
The cost of the old-age pension system has greatly increased, as might have been expected, for the reason that an increasing number of old persons who previously would have come under the poor-relief system are now receiving old-age pensions. But this has come about under the influence of the general rise in prices and in apprehension of the needs of the people to be supported. For this reason the amount of the pension has been increased, though somewhat irregularly, since each municipality determines the amount of its own pensions. The government subvention was originally limited, as already stated, to 2,000,000 kroner; after some years this limit was extended to 2,500,000 kroner, and in 1902 the limit was completely abolished. In the fiscal year 1904-1905 the public expense had increased to 7,000,000 kroner; five years later it was about 10,000,000 kroner; and in the last fiscal year before the war it was 14,000,000 kroner. During the World War it rose with enormous rapidity; in 1916−1917 it was 20,000,000 kroner. Approximately 70,000 persons, all told, benefited by the system, besides about 20,000 who were dependent upon them. A considerable proportion of the people who have reached the age of sixty are now receiving old-age pensions, and approximately one-fourth of them are men. The percentage increases greatly with advancing age.