The Norwegian government is proposing a new private pension scheme that it hopes will encourage the population to put more money away for retirement.

The proposal, part of its revised 2017 budget, seeks to address a tax disincentive in the existing system and will almost triple the annual savings allowance.

Finance minister Siv Jensen said: “The government wants to facilitate increased private savings for pensions.”

The government’s proposed new tax-favourable scheme, unlike the existing individual pension savings scheme (IPS), will be subject to the same level of tax on payouts that contributions were spared.

Contributions to the current IPS are deductible against general income tax, but pension payments from the scheme in retirement are taxed as pensions income, which is higher than general income tax alone. Pensions income includes general income tax, step tax (trinnskatt) and social security contributions (trygdeavgift).

The proposed new scheme will be tax-deductible against general income tax and payments in retirement will be taxed at the same rate.

In common with the current IPS, returns on assets in the new scheme will be exempt from capital tax (formuesskatt) and current income tax (løpende inntektsskatt). 

The annual savings allowance into the new scheme will be NOK40,000 (€4,288), compared to the current NOK15,000 annual ceiling on IPS contributions, and there will be no limit on total savings in the scheme. 

The new scheme conditions will apply from the 2017 tax year, the ministry said.

The government has also proposed increasing access for the self-employed to tax-favourable pension savings by lifting the limit on contributions to 6% of personal income from self-employment. The limit is currently 4%.

Financial sector organisation Finance Norway (Finans Norge) welcomed the proposal.

Tom Staavi, information director at the organisation, said: “We think it is very nice that the government is now delivering on its promise in the Sundvolden Declaration of 2013.” 

This declaration outlined the intentions of the coalition government following the 2013 general election.

“The problem with the scheme there has been up to now is that there has been a higher tax rate on the withdrawal than there has been tax deduction on the deposit,” Staavi said. “It has meant that many have quit using the scheme.”

The Ministry plans to submit draft regulations for consultation this spring so the scheme can come into force in the autumn.