EUROPE – Norway's pension reform is now entering its final phases, with a new proposal potentially opening up the paid-up policies market, which has been stagnant for years due to onerous guarantees.

The country's Banking Law Commission presented its final section of a three-part report to finance minister Sigbjørn Johnsen last week.

In this report, the commission looked into issues relating to how to connect existing occupational defined benefit schemes with the new legislation and necessary transition rules and timeframes towards a transfer to a hybrid system.

Companies will have a three-year transition period, and the commission proposes special transition rules for employees with only a few years left in work.

The commission also proposes separate rules for the "free policies" that were issued before the reform.

The new proposal aims to introduce a flexible transition arrangement for existing occupational pension systems.

The main point is that future pension contributions should be based on the new occupational pension law, and existing assets should be transferred within the system without the so-called 'fripoliser', or paid-up policies, being issued.

These policies have an annual guarantee of 3-4% in Norway, which has been difficult for pension providers to achieve during the past few years of poor returns and low interest rates.

The industry had lobbied the country's regulator, without success, to change the rules from annual guarantees to guarantees paid at the maturity of a policy, which has made it impossible to transfer the policies between providers.

The new proposal will make it possible to change these policies to fund solutions, which will open up the transfer market.

The new proposals are expected to come into law by 2014.

The second part of the three-part report was presented in July 2012.  

The draft proposal has two alternatives – a standard and a basic model – for regulating cost and risk sharing, within an individual pension plan, between the pension scheme, company and workers.
According to the commission, the model is a hybrid between current defined contribution and defined benefit models, which will offer more flexible solutions for setting up pension schemes.

After a three-month consultation period, the ministry asked the country's regulator to come up with proposals for law changes, taking into account the comments from the consultation period.

The first part of the report was presented by the Banking Law Commission in May 2010, and changes to the law came into force from 1 January 2011.