Dealing with pensions the Danish way


Whisper it gently but there are a number of things worth copying from the social democracies of the Nordic countries. Sweden has school vouchers, no inheritance tax and no national minimum wage. Denmark has low statutory labour protection, meaning a more flexible workforce. And now, from the Economist, I find that Denmark is the first country to really grasp the pensions nettle.

So far only Denmark has taken the radical step of indexing the pensionable age to life expectancy.

This has to be the way to go, even Brad DeLong, no rightist he, has been known to advocate the same thing. The pensionable age should be set at the average age of death of the previous age cohort.

The basic and simple problem is that current pensionable ages were set when everyone was living rather shorter lives. When Bismark started the state pension you would have to be lucky to reach pensionable age. When Lloyd George started ours you'd have to live longer than average to get it. Now you'll be unlucky if you don't reach pensionable age, although obviously there are some through illness or accident who do not.

With ever increasing life spans this simply cannot go on. We need to work for more years, that's it. You can of course do what you want with whatever savings you have made and good luck to you, but as far as the State is concerned there is no reason why a hale and hearty 69 year old should be consuming the taxes of those still in the labour force. As above, raise the pensionable age to that of the average age at death of the previous age cohort. That would mean around 77 for men, 81 for women as things currently stand. Return the State pension to what it was always supposed to be, social insurance against outliving your rational level of savings.

Of course, there will be criticisms of this. Does Worstall really insist that we must all work until we drop?

No, only that half of us should.