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IPE special report May 2018

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Call for Petroleum Fund to link to pension system

NORWAY – The International Monetary Fund has called for the 97.9 billion-euro Petroleum Fund to be more explicitly linked to the rest of the Norwegian pension system.

“An explicit linkage of the GPF government Petroleum_Fund to the pension system would also be useful in making clear the dependence of future retirement incomes on a careful use of the assets of the fund,” the IMF said in a report on Norway.

And it IMF underscored “the need to address the long-term fiscal challenge arising from population ageing”. It reiterated that the Petroleum Fund’s assets would not be sufficient to cover future pension obligations. The Organization for Economic Cooperation and Development made a similar point last month.

The IMF said the fund’s foreign investments had mitigated so-called "Dutch disease" effects, where the discovery of a natural resource hits exports and increase imports. The fund, the IMF said, has preserved wealth for future generations.

It urged Norway to adopt the recommendations of the Pension Commission – “notably by limiting the degree to which pensions are indexed to wages, aligning benefits to average life-time earnings, and taking into account increases in life expectancy”.

The Pension Commission reported earlier this year and proposed reforms such as the creation of a new public pension fund based on the Petroleum Fund and the National Insurance Fund.

“I take due note of the positive assessment of the Norwegian economy and Norwegian economic policy,” said finance minister Per-Kristian Foss.

“Still, challenges ahead are demanding and it is important to address these challenges appropriately,” Foss said. The tax reform presented last Friday is an important step to enhance the growth of the Norwegian economy. The pension reform is also important in improving work incentives.”

The Petroleum Fund revealed last month that it returned 12.6% in 2003, beating its benchmark by 0.59 basis points.

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