Nothing Is Rotten in the State of Denmark, At Least in Terms of Pensions

Once again, those irritatingly competent Danes triumph.

This time, it’s because of their pension system. According to the Melbourne Mercer Global Pension Index, which compares retirement-income systems in 18 countries, Denmark ranks No. 1, receiving the only A grade on the list. The index rates these systems based on their adequacy, sustainability and integrity. And Denmark boasts a system that can pay out enough, keep going and fend off potential raiders.

As for the rest of us, not quite so much. Canada, Sweden and Australia manage to get B’s. The United States rates a C, along with Brazil, Chile and France.

Meanwhile, what all of these countries, including Denmark, have in common is a large pool of money entrusted to a small number of institutional investors. This became a staple after World War II, and Peter Drucker considered it to be so important that he wrote a book about it in 1976 titled The Unseen Revolution: How Pension Fund Socialism Came to America.

Fifteen years later, in an introduction to a new edition of the book, Drucker asserted: “No book of mine was ever more on target . . . when it was first published. .  . And no book of mine has ever been more totally ignored.” What Drucker had seen was pension funds becoming the dominant owners and lenders in society, with institutional investors holding half of the shares of large corporations, a state of affairs Drucker termed “one of the most startling power shifts in economic history.”

Drucker felt this created a perilous situation for nearly all advanced societies. Pension funds were subject to looting by governments looking to plug deficits; under pressure to produce returns above market indices in order to meet their obligations to retirees; and could be coopted for the purposes of special interest groups.

All of these problems are hard to fix, and many lessons would be learned the hard way. But there is no escaping them. “Different countries will undoubtedly structure the pension fund economy their own way, just as they structured the ‘finance capitalism’ which emerged in the closing years of the 19th century,” Drucker predicted in Post-Capitalist Society. “But pension fund capitalism will become the universal ownership mode in developed countries; the age structure of developed countries along makes this practically inevitable.”

Is there an acceptable alternative to pension fund capitalism as a means to securing people’s retirement?