Income during Retirement: On the Role of Occupational Pensions and Home Equity as a Pension Device

This chapter offers a broad overview of the three-pillar Danish pension system. A key part is focused on the funded, occupational pension system. Launched in the blue-collar segment of the labour market in 1987, as a grand agreement between social partners backed by the government, and as part of the collective wage-bargaining process, the Danish occupational pension system differs from the set-up in most other countries, where occupational pension schemes typically have been introduced as part of the legislative process. The schemes play a key role behind the overall system’s success with respect to achieving satisfactory coverage, providing high replacement rates, and, not least, for keeping fiscal policy on a sustainable path. The chapter also examines the potential of home equity as a pension device. Using a new, unique data set comprising all Danish households, with data for household wealth and debt broken down on several categories, the value of home equity across different age, income, and wealth groups is computed. This is performed not only in a historical context but also as a future scenario. It is found that home equity effectively represents an additional pillar to the Danish pension system.