samlet årgang - Økonomisk Institut - Københavns Universitet

THE EFFECT OF THE ’92-REFORM OF THE VERP ON RETIREMENT AGE 171
(1) be between 60 and 66 years of age.
(2) have been a member of an unemployment insurance fund for 20 out of the last 25
years (however, for people born before March 1952, the condition was 10 of the
last 15 years, provided that the membership in the unemployment insurance fund
was continuous from 31 March 1992 until transition to VERP). 5
(3) have been working full-time for at least 26 weeks in the last three years, 6 be entitled
to unemployment insurance benefit, or have received transitional benefits
(the Transitional Benefit Program (TBP, overgangsydelse) was introduced 1 March
1992 and was in force from 1992 to 1996). 7 After 1 January 1995, people who have
received part-time VERP were also entitled to VERP benefits.
(4) live in Denmark.
In principle, it is possible for people aged 60-66 years to leave the VERP program
once and re-enter later, provided that the third condition mentioned above is fulfilled
once again. In practice, however, very few make use of this possibility, and therefore,
such transitions are ignored in the analyses.
In 1992, the normal retirement age was 67 (65 from 2004). At this age, VERP benefit
recipients are transferred to old age pensions. The VERP program is generous in
the sense that the amount of benefits does not affect the old age pension, which is
independent of previous earnings. The replacement rate, when VERP benefits are
received, is on average 70 percent of labour market income for low-income workers
and 40 percent for high-income workers, cf. Bingley et al. (2003).
In the period studied, the initial VERP benefits did not depend on the age at entry.
Instead, it was reduced as a function of time spent in the program. Before 1 March
1992, VERP benefits for the first two and a half years were equivalent to unemployment
benefits, which amount to 90 percent of previous earnings, subject to a ceiling. 8
After two and a half years, VERP benefits were reduced to a maximum of 80 percent
of unemployment benefits 9 (and, after 1 January 1994, raised to a maximum of 82
percent). After 1 March 1992, the reduction in VERP benefits after two and a half
years was removed for workers who delayed retirement until at least age 63. These
workers received a benefit equivalent to the unemployment benefit during the whole
VERP period. 10 In other words, annual VERP benefits for people retiring at age 63-64
5. Before 1 March 1992, it was 10 out of 15 years for everyone.
6. After 1 January 1997, the condition was changed to at least 52 weeks in the last three years.
7. For more information about this program, see Section 4.
8. This ceiling is reached quite fast. In fact, the gross compensation percentage for an average production
worker (as defined by the OECD) was 53% in 1997, see Hansen (1999).
9. If benefits were below the maximum of 80 percent of unemployment benefits the first two and a half
years, benefits were not reduced.
10. The rules applied until the reform of the VERP in 1999.