As oil prices decline, Norway is realising the need to sort out its pensions problems
Occupational pension funds in Norway have become increasingly widespread over the past few years. Social security pensions provides for upto 42% of salary in certain salary brackets, but despite this provision, forward thinking Norwegian companies continue to set up occupational pension provision for their employees.
Under social security, employees contribute 7.8% of total earnings other than those earning less than Nkr21,250 (E2,599) who pay nothing. The normal retirement age in Norway is 67 for men and women and the total minimum payment after a 40-year insurance period for a pensioner receiving a basic pension is Nkr69,360 and for a pensioner receiving a supplementary pension it is Nkr58,735.
Currently, around 660,000 Norwegians are covered by collective pensions funds. This figure excludes the number of un-funded pension schemes in the public sector. Around half of all private sector employers provide a supplementary pension which typically provides between 60% and 65% of final salary.
The level of occupational funded reserves is very small at Nkr50bn, compared to current supplementary pension liabilities, which stand at a far larger Nkr1,150bn. Some of this gap is taken up by insurance contracts, which acoording to some estimates brings the number of assets up to Nkr350bn, and the remainder is taken up by unfunded schemes.
On the personal pension side, it is estimated that around 590,000 Norwegians have individual pension arrangements funded by a bank or an insurance company.
The two alternative ways to set up a funded pension plan in Norway is either through a group insurance arrangement or by an independent trust fund. The majority of pension plans are set up as group insurance contracts. However, the number of trust funds is steadily rising.
Pension fund investments are controlled by the Norwegian Supervisory Board of Finance. Plans are required by law to generate a cash flow return of at least 3-4% per year depending on the actuarial basis of the funding vehicle. Up to 35% of the assets are allowed to be invested in shares, though an insurance company cannot hold more than 15% of the shares in a single company. Investment assets are weighted for ‘safety’ according to the asset class, cash being rated 100%, real estate 50% and ‘risky’ investments, such as equities are rated at 0%.
Recent developments
The Norwegian pensions system has not undergone any substantial changes over the past few years, unlike some of its other European counterparts. The country’s budget surplus and its substantial oil-rich reserves has meant the need for pensions reform has not been fully pushed forward. However, the population is ageing and the decreasing oil reserves and fluctuations in the Nkr/ USD exchange rates combined with the price of crude oil, signifies that more attention will be paid to it in the future.
Proposals are under discussion for a new occupational pensions law. One of the main points is stricter linearity for premium payments made by companies to insurance companies and pension providers to cover liabilities which must include all wage increases made over the year. Previously, companies had the possibility of postponing extra payments until the following year. Furthermore, there are other proposals that if a company’s premium fund reaches a level equivalent to 10 times the yearly premium payments, then the surplus should be allocated back to the company. Companies can also ask for money back if the level is five times the annual amount.
Pensioners will be due for higher retirement payments should a company’s pensions surplus yield more than 4% in investment returns, under rules to make the excess reserves payable to existing retirees. New employees will also enjoy greater pension rights if the law gets the green light, as they will be immediately accepted as scheme members from the age of 20 and will be eligible for pension rights after a year of employment .
Published at the beginning of April, a final parliamentary decision is expected soon. A working group has already been set up by the Ministry of Finance, to start looking at the question of defined contribution provision in Norway. Should the changes allow DC schemes, many believe companies will adopt them in an attempt to avoid the increases in cost and administration.

Norske Pensjonskassers Forening
Managing Director: Frederik Evang
Address: Parkveien 55,
N-0256 Oslo
Telephone: +47-22.44.76.00
Fax: +47-22.44.55.60
Email: adv-fe@online.no
Date formed: 1983
Number of Members: 79

Norway
Number of funds registered: 136
Funded retirement assets: Occupational pension scheme assets as of 1997 - Nkr118.5bn. 1997 contributions: Nkr8.1bn in life insurance and Nkr 7.1bn in pension funds
Norske Pensjonskassers Forening was founded in 1983 and has now 79 members. Its main purpose is to promote the conditions for private pension funds in Norway by way of a close contact with the authorities. Its other main purpose is to be of service to its members and to inform them about changes in legislation etc.
Approximately 35% of the work force in the private sector is covered by occupational pension schemes.About 620,000 beneficiaries are covered in occupational pension schemes, of which 450,000 are in life insurance companies and 170,00 in pension funds.

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