Since 1991, the Danish social partners have introduced and extended a system of collectively agreed occupational pensions. These 'labour market pension' schemes now cover over 90% of employees and involve a compulsory contribution of 9% of pay. A study published in September 2003 argues that the introduction of the labour market pension scheme has both contributed to dealing with the problem of future pension financing (which is not now seen as a major problem in Denmark, in contrast with many other European countries) and strengthened social partner organisations and the collective bargaining system.
European countries are facing growing problems with their future pension burden. All over Europe, the growth in the share of the population made up by elderly people and a falling labour force are creating economic problems which – over a short span of years - threaten to undermine the welfare system. This raises the question of how the financing of welfare benefits for the large numbers retired people in future can be ensured (EU0301206F). There are major variations in the pension systems of European countries, but irrespective of the composition of the various schemes it seems to be a general problem that they are not 'future-proof'. In a number of countries, governments are facing major difficulties in implementing pension reforms in the form of stricter economic policy measures which could lighten the financial burden. This has led to protests in the form of strikes and demonstrations in countries such as France (FR0309103F) and Italy (IT0309203F).
Welfare Commission set up
Future pensions provision is also a very topical issue in Denmark and has led to the recent establishment by the coalition government of the of the Liberal Party (Venstre) and the Conservative Party (Det Konservative Folkeparti) of a Welfare Commission (Velfærdskommission), which is to come up with proposals for possible solutions. The debate focuses, in particular, on the early retirement benefit scheme, which will probably be abolished after the Commission submits its report in 2004. The problem is that a tightening of the scheme in 1998 (DK9812197F) has not led to a sufficient increase in the average retirement age. Generally, people are still retiring from the labour market too early, because they can draw early retirement benefits. This reduces the size of the labour force and makes it more difficult to finance the increase in welfare benefits resulting from the ageing population.
On the other hand, the financing of the pension system as such does not – in a longer perspective – seem to create problems for the Danish economy. The social partners addressed this issue more than a decade ago with the conclusion of agreements to set up collective occupational 'labour market pension' (arbejdsmarkedspension) schemes, and a new study carried out by the Employment Relations Research Centre (FAOS) at the University of Copenhagen analyses how it was possible for the social partners to reach agreement on such a radical reform. One of the conclusions is that these labour market pension (LMP) schemes have contributed to the creation of a sustainable general pension system and, at the same time, strengthened the position of the social partners and thus the Danish collective bargaining model. The results of the study were published in September 2003 in a book entitled Fra magtkamp til konsensus. Arbejdsmarkedspensionerne og den danske model ('From power struggle to consensus. Labour market pensions and the Danish model', DJØF Forlag), and are summarised below.
Landmark development
Collectively agreed LMP schemes started modestly in the private sector in 1991 with a contribution of 0.9% of pay. However, the schemes have been extended in successive bargaining rounds, and the contribution stand in 2003 at 9% of pay, of which the employers pay two-thirds and the employees one-third, under the four-year sectoral agreements concluded in 2000 (DK0002167F and DK0002168F). Furthermore, there is a wish for even higher occupational pension contributions among employees, and the issue is sure to feature in the next collective bargaining rounds in early 2004. It is thus no exaggeration to characterise the agreed introduction of LMP schemes as a landmark in the history of the Danish collective bargaining system in the 20th century, which will continue into the 21st century.
LMP schemes represent a fundamental reform because they have changed the balance in the Danish pension system. The pension system was initially based solely on a general 'welfare model' with pensions financed on a current basis out of general taxes. In the 1960s, the old-age pension was supplemented by a 'statutory labour market supplementary pension' (ATP) scheme. However, the ATP scheme has never developed to such an extent that it has the necessary weight to constitute a substantial supplement to the general old-age pension. Politicians have never been able to agree on an effective reform of the system.
It was only with the introduction of the LMP scheme that the general old-age pension was supplemented with a substantial element based on a labour market-based welfare model in the form of compulsory savings through (private) occupational pension funds. This marked a break with the welfare model which had been identified with the principles for the organisation of the welfare system applied under Social Democratic Party (Socialdemokratiet) governments after the Second World War, and it took some internal struggles within the trade union movement and between the union movement and the Social Democratic Party to create the necessary support for the new LMP system. It was, at the same time, a reform which met with a large amount of scepticism on the part of many employers, which saw the new pension funds as an attempt to introduce 'economic democracy by the back door' in the form of the establishment of collective employee funds under trade union control. This could - in the opinion of the employers - have constituted a threat to their managerial prerogatives.
Joint declaration
Despite these problems, it proved possible to implement the LMP system because it received a necessary 'kick-start' through an untraditional alliance between the then Conservative-Liberal coalition government and the trade union movement. This alliance culminated in the conclusion of a tripartite agreement which sought to provide an institutional framework for new economic growth in Denmark. This so-called 'joint declaration' was concluded in December 1987 (DK9910151F). The trade unions committed themselves to a wage policy which would improve competitiveness, while the government promised to support a labour market pension reform. Although the government of the time showed hesitation during the final phase of its term in office – due to external and internal weakening – placing the LMP reform in jeopardy, the trade unions were unrelenting.
The social partners in the public sector kept the reform on track with the conclusion of new collective agreements in 1989 which introduced an LMP scheme for those groups of public employees without any supplementary pension cover. This was followed up in the private sector in the 1991 bargaining rounds - this was of decisive importance as the largest groups without a supplementary pension scheme were found in this sector. A compromise on the introduction of LMP schemes was, not least, due to an accidental coincidence with reform of the collective bargaining system during the same period. Power shifted from the level of the central organisations - the Danish Confederation of Trade Unions (Landsorganisationen i Danmark, LO) and the Danish Employers’ Confederation (Dansk Arbejdsgiverforening, DA) - to large, and in some cases new, sectoral organisations such as the Confederation of Danish Industries (Dansk Industri, DI) and the Central Organisation of Industrial Employees in Denmark (CO-industri) union cartel. These new actors had a common interest in strengthening their respective positions. Thus the social partners in the industry sector succeeded – in spite of very conflictual starting positions – in reaching agreement on the introduction of new LMP schemes. This added a new important element to the issues which are covered by collective bargaining and thus emphasised the importance of the social partners.
The introduction of the LMP system is the largest 'privatisation' which has taken place in the Danish welfare field, but it has been implemented as a compulsory scheme based on principles of solidarity. Those with long life expectancies have to contribute to the coverage of those with shorter life expectancies. At first, there was still some concern among employers as to what the many billions of Danish kroner invested in the new sector-based pension funds were to be used for, but today these funds are administered in peaceful cooperation between the social partners.
Commentary
It is extraordinary that it has been possible through the collective bargaining system to introduce supplementary pension schemes which cover more than 90% of employees. Those without LMP coverage are now nearly exclusively from two groups. First, there are those outside the labour force or with very low incomes, whose lack of coverage is without major social significance as these people, who have only an old-age pension and, in some cases, an ATP supplementary labour market pension, have a very high pension income in relation to their previous income level. Second, the other residual groups without LMP coverage are either self-employed or people with very high incomes, who are able to provide for their pensions through private, individual insurance schemes. This is the reason why it has been possible, exclusively through collective agreements and without subsequent supplementary legislation, to create a sustainable pension system which will guarantee all pensioners a relatively high coverage in relation to their previous earned income.
In an international perspective, the 1990s was a period of decline for both trade unions and employers' organisations and collective agreements. However, in Denmark, with the introduction of LMP schemes from 1991 as the starting point, there has been a strengthening of the collective bargaining system. This trend has been further accentuated by extensions in both the coverage and content of collective agreements, with new tasks being taken up in agreements, for instance in the social field, and the delegation of the competence to 'fill in' the sectoral framework to the social partners at enterprise level.
This development has created a stronger foundation for the 'Danish labour market model' which ensures that it is left to the social partners to regulate pay and employment conditions without political intervention. Furthermore, the partners also have a major influence on the development of labour market-related welfare schemes. With the introduction of the LMP system, the social partners demonstrated their ability to solve major conflicts of interest and thus created the basis for consensus about the implementation of necessary social reforms. The new Welfare Commission has been set up without representation from social partner organisations. It is a Commission of economic experts which is to come up with proposals for solutions to the problems which still exist. However, the question is whether the social partners should be involved once again if these proposals are to be transposed successfully into practical policy. (Jørgen Steen Madsen, FAOS)