Norway’s Finance Ministry has rejected a legal interpretation taken by the country’s Financial Supervisory Authority (Finanstilsynet, FSA) regarding how pension funds should account for mutual fund fees.

According to one lobby group, the government intervention will save pension funds and their customers  approximately €70m annually or a one-time cost of more than €750m.

On Monday, the Finance Ministry wrote to the FSA giving its opinion on a contentious issue that has had the supervisor at loggerheads with the pension fund sector for several years.

The FSA has insisted, since a letter of 7 April 2021 sent to supervised entities, that according to its interpretation of the law, pension funds and life insurance companies must account for the mutual funds they invest in gross of fees, rather than on a net basis.

The Norwegian Association of Pension Funds (Pensjonskasseforeningen) and Finance Norway (Finans Norge), however, have been arguing – backed by other stakeholders and opinions from lawyers and consultants – that pension funds are legally free to account for them on a net basis.

In its letter to the FSA, the ministry said: “After an overall assessment, the Ministry cannot see that it is sufficiently clear from Section 3-3 of the Insurance Business Act that management fees for placement in funds must be included in the management costs that must be included in the cost result.”

“Therefore, in the Ministry’s assessment, there is not sufficient legal basis for ordering the pension facilities to include such management remuneration in the price tariffs,” it said.

Stakes have been high for pension funds in the dispute, which has hinged on whether a mutual fund provider can be considered to be a subcontractor of a pension fund.

Addressing that issue, the Ministry said in its letter on Monday that a management company for securities funds could “hardly be considered a subcontractor to a pension scheme, according to a common linguistic understanding”.

Since including mutual fund returns gross of fees increases pension funds’ overall costs and therefore the need for increased provisions for future administration costs ultimately decreases solvency levels, the FSA’s ruling would have obliged them to cut investment risk and accept potentially lower returns, according to the Norwegian Association of Pension Funds.

Christer Drevsjø at Pensjonskasseforeningen

Christer Drevsjø

Christer Drevsjø, chief executive officer of the pension fund lobby group, told IPE: “The case concerns potentially very large costs for Norwegian employers, both private and public.

“The Ministry of Finance has come to its conclusion, and disregards the Norwegian Financial Supervisory Authority’s understanding of the law,” he said.

“This means that Finanstilsynet has had no legal basis in Section 3-3 of the Insurance Business Act to impose gross accounting, so netting of management costs in funds is an option,” he said.

Drevsjø said that if the FSA’s interpretation had prevailed, pension funds and their clients would have lost around NOK8bn (€745m) as a result, according to an impact analysis by Gabler and their actuarial specialists.

The case has concerned potentially very high costs for Norwegian employers, both private and public, Drevsjø said, adding that major labour-market organisations such as LO, KS, Pensjonistforbundet and NHO had supported the association’s work related to the case.

In its work on the issue, Finance Norway argued that the FSA’s approach affected independent policies, company pension schemes in the private sector as well as municipal pension schemes.

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