Elderly of the future. Burden or resource?

by Tina Honoré Kongsø and Nils Groes, August 2002

Report available in Danish

The Danish welfare state is facing a challenge in the next decades, where the number of elderly, who will need both publicly paid services and transfer incomes, will increase steadily. In 2030, the number of elderly (over 60) will have risen more than 50 per cent above the level in 2000. And the number of (particularly needy) elderly over 80 will increase by approximately 75 per cent in the same period.

Since the 1970s, the retirement age for men in Denmark has fallen slightly, while it has risen considerably for women. At the same time, the life spans for both genders have increased. As a result, Danish men live a few years longer as pensioners, while Danish women live a few years less as pensioners (although they still live longer as pensioners than men).

The number of Danes engaged in active employment does not seem to change markedly over the next 30 years. However, this means there will be fewer Danes engaged in active employment per elderly person (from 4 today to 2.7 in 2030).

Of course these prognoses are riddled with uncertainty, and yet there are few long-term projections regarding social conditions that are as certain as these.

In Denmark, the regional distribution of elderly is more uncertain than the national. But the data suggest that, in 2030, the share of elderly will be far below the national average in the Copenhagen metropolitan area and in the County of Aarhus (where there are large influxes of especially college students and where employment has been on the rise for the last decade). In contrast, the problems will be considerably greater in peripheral areas such as Bornholm and Lolland-Falster (as well as in South Jutland).

The educational level of the elderly will increase. In 1990, two-thirds of 65-year-olds were unskilled, a quarter were skilled, while the last 10 per cent were college educated. In 2030, only 30 per cent will be unskilled, 45 per cent skilled, and a total of 25 per cent will be college educated.

The health of the elderly will also improve – many more will be able to care for themselves in their own homes (without outside help). Today, a 70-year-old can do much more than a person of the same age could 20 years ago. This has been the trend so far, and this is how it is expected to continue.

Generally, the incomes of the elderly in Denmark are also expected to increase over the next few decades, as more and more people have paid into pension plans during their active working years.

On the other hand, the disparity will be greater: the affluent pensioners will become steadily richer compared to those living off state pensions alone. The latter in particular, will be clearly left in the lurch by the income growth of the affluent pensioners.

Increasing expenditure

From 2000 to 2030, demographic development alone will lead to an increase of approximately 23 per cent in public expenditure on the elderly. Increased transfer incomes make up 60 per cent of the growth, while services make up 40 per cent. Three-quarters of the growth is due to elderly people over 65. However, the increase in expenditure on the elderly is by no means the result of demography alone. A large proportion will come from increasing service standards and transfer incomes – this could, in fact, easily become the greatest problem.

The elderly issue is not only a Danish phenomenon. On the contrary, the problems are even more pronounced in other OECD countries, such as Italy, Spain and Germany. In part, these countries experience greater demographic upheaval, and in part their relative state pensions are comparatively larger (e.g. compared to unemployment benefits).

Basically, Denmark still has a high welfare standard (not for state pensions, but for pre-retirement benefits, etc. as well as for health and social care).

This will result in an increase in public expenditure on the elderly of almost 6 per cent from 2000 to 2050, which is slightly more than the average of the other OECD countries referred to here (but significantly less than e.g. Finland and Norway).

Although Denmark's expenditure on home care only makes up a small portion of public service expenditure on the elderly (15 per cent), a large proportion of elderly in Denmark receive publicly-funded home care. In addition, a relatively large number of Danish elderly people live in nursing homes (7 per cent), however this number does not differ essentially from what is seen in many other OECD countries. The idea of having the elderly live in their own homes as long as possible is far from being only a Danish phenomenon.

Finally, the question is raised about whether there will be enough health and social care professionals in future. In Denmark today, there is already a shortage of doctors and nurses – so greater flexibility is needed among professionals taking medical and social care of the elderly.

The final section of the report (Chapter 4) considers what can best be done to deal with the increasing numbers of elderly. Three areas are focused on:

• General fiscal policy

• Increased participation in the labour force

• Changes in methods of financing the welfare society.

With regard to general fiscal policy, it seems clear that increased public savings in coming years is one approach. This would provide greater economic flexibility for funding the care of the elderly.

An increased participation in the workforce among Danes of all ages would provide opportunities for financing the needs of the elderly. This works both ways: more people would be paying taxes while fewer would be receiving transfer incomes. Most important, however, would be maintaining the present high employment rate (again, this is part of fiscal poli­cy). But it is also important that more young people, immigrants and refugees are drawn into the workforce. Finally, it should be possible to change the pattern of retiring from the workforce, so that more elderly are encouraged to stay longer on the labour market – either full or part-time. There is something strange about how people in Denmark retire from one day to the next – they go from working 37 hours a week to not working at all. Many elderly would undoubtedly be happy to continue working longer, if their workloads could be reduced (and it was worth their while financially). And many elderly could be engaged in community work. Since the 70-year-olds are healthier and more agile than previously, some of them might perhaps find it worthwhile to help other elderly. 

The financial structure of the Danish welfare system should undoubtedly be reorganised. In view of the fact that there are many (and will be more) affluent pensioners, the logical approach would be to have them pay for some of the services that the state provides. Home care is a good ex­ample, but even visits to a GP could be covered by user charges. However, user charges alone cannot solve all the problems. Today, the majority of pensioners in Denmark would not be able to afford them, and even in 30 years (when the Danish Confederation of Trade Unions’ pension scheme is fully developed) there will be a substantial minority who will not be able to afford user charges.

Calculations show that increased employment rates (high pension ages) and user charges can at the most solve no more than a quarter of the financial problem. The remainder will have to be dealt with through fiscal policy. However, the problem is far from unsolvable. And the elderly may become important participants in confronting this challenge. But if we do not begin to face the challenge now, we could easily end up with a painful quick-fix solution.

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