Norway: Little interest in new individual savings system
Christine Senior assesses regulatory developments around pensions in Norway
Last year a new individual pension savings scheme was introduced in Norway which offered tax incentives for people to save NOK15,000 a year (€1,740) in voluntary schemes. This replaced a previous, more generous, scheme offering tax-deductible savings of up to NOK40,000, which had been abolished in 2007. Its abolition prompted an outcry that forced the government to reintroduce a similar but less generous scheme.
"The fact they took away all tax incentives from 2007 led to a lot of debate in the parliament," notes Elling Lundesgaard, a senior consultant at Mercer in Oslo. "Therefore it was reintroduced at a much lower level and the opposition in Norway has promised they will introduce more generous tax breaks for pension saving."
With elections due in September, if the current opposition comes to power it remains to be seen what will happen to this scheme.
In any case there are doubts that it will prove popular in its present form. Figures from the first few months of the scheme showed a slow take-up. Between its introduction in June 2008 and the end of the year only 10,000 people were saving in it.
"As the tax relief with this scheme is doubtful - for people above 55 the tax effect is probably negative - it probably will not be very popular," says Rolf Skomsvold, secretary general of the Norwegian Pension Fund Association.
The whole Norwegian pension system is is a state of flux. Reform of social security pensions is under way and this will inevitably entail changes to private pension provision to bring it into line.
One particular issue is the age of retirement. The official age for retirement is currently 67 but new legislation will make it possible for Norwegians to take their pension at 62. Other changes address the rules on accrual of pensions. Currently social security pensions are based on the 20 best years of a career, and Norwegians need to work 40 years to qualify for a full pension. In future all years worked will count in calculating the pension, so someone retiring at 62 would have a lower pension than if they retired at 70.
But the timetable for this to happen has already fallen behind and instead of changes being introduced from 1 January next year, as originally planned, the change is now set to be introduced from 1 January 2011. Whether even this later date is feasible is in doubt.
"My personal opinion is the social security administration has a lot of challenges and I don't believe they will be able to cope with the new legislation as soon as 1 January 2011," says Lundesgaard. "Social security administration is rather chaotic."
In parallel to the social security pension changes discussions are going on to bring occupational pensions into line with the social security pension, to allow the same kind of flexibility. These discussions are likely to be protracted.
"One of the important aims in the new pension is to make the pension age quite flexible in the hope that people will work longer and get a higher pension," says Skomsvold. "What is difficult is how the workplace pension system should be adapted to that. It is tactically and politically quite difficult."
With the changes to the public pension due to come into force in 2011, ideally the occupational scheme should be ready at the same date.
"I really don't think that will be possible," says Skomsvold. "The working group looking at the question will probably deliver their paper in early 2010."
Last year also saw some relaxation of the rules that governed investments by pension funds. The 35% equity limit was abolished, and the limit on alternatives was raised from 5% to 7%. But the loosening of restrictions did not satisfy the industry.
"There is a lot of industry pressure to relax the quantitative restrictions on investments," says Christian Fotland, director of Gabler Wassum, who is concerned at how the quantitative restrictions imposed by Solvency I will make the transition into a different regime under Solvency II in 2012.
Another change from last year was the revision of Norway's insurance act, which updated the way assets were treated by insurance companies, to make clear the separation between assets that belonged to the insurance company and those of its clients.
The aim was to bring more transparency to the operations of insurance companies. Unfortunately the opposite has been the case, according to Fotland.
"Earlier you could have said there was not very much transparency, but now it's even less," says Fotland. "The marketing approaches are still the same. If an insurance company announces they made a lot of money, consumers would tend to think we made a lot of money as a client of that company, but sometimes the company is talking about money it made for clients, sometimes it's talking about money it made for shareholders. It's mixing the two. It depends how it's communicated. "
The current hot topic on the agenda for pension schemes in Norway is whether the insurance regulator will decide to reduce the maximum allowable discount rate in defined benefit pensions from the current 3% rate to 2.75% or 2.5%.
According to the EU's Solvency I regulations, the maximum discount should be 60% of the government bond rate, which would bring the rate down to 2.5%.
But Fotland does not think this will happen. "My bet is there will be no change," he says. "What [the regulator] has said in some material is they don't believe anybody in the EU is adhering strictly to the letter within that directive. If nobody else is doing it, why should they do it?"