On December 8, 2000 the Kvidal task force was appointed by royal decree. The mandate was to report on gender neutrality in retirement schemes for the private sector. The task force was also asked to give an opinion on denying the insurance companies and pension funds the ability to use unequal insurance premiums for men and women in differing pension schemes.
The conclusion was that a prohibition against unequal premiums would result in great economic costs and administrative disadvantages. However, the task force proposed an important change in the brand-new act on defined contribution (DC) schemes.
From June this year, the law says that when establishing a retirement scheme it should be settled in the scheme regulations what kind of procedures must be followed at the same time as disbursement:
o Either it is a disbursement by instalments from a savings agreement in a bank or a mutual fund;
o Or as a retirement pension from an insurance company or a pension fund, converted into an insurance policy based on mortality.
The result is that those private enterprises which choose to convert the fund to an insured retirement pension (based on mortality rates) have to compensate for female employees by higher contributions. This to achieve the objective that men and women should be given equal annual benefits. The question of equal treatment, proportionality and neutrality in relation to gender has therefore been given a new dimension.
If this regulation is maintained it is doubtful if Norwegian insurance companies and pension funds will be main participants in the market for DC plans. Instead mutual funds are being given a golden opportunity to enter into and administer such contracts.
In May of this year, The Ministry of Finance sought opinions on a proposal concerning a reduction in the maximum technical interest rate from 4% to 3% for private pension funds and private group pensions in force from January 1, 2004. The proposal is a result of rules that restrict the maximum technical interest rate to 60% of long term yields on various government bonds.
This is a desirable proposal that most of the participants in the pension market applaud. But with the following differences in treatment:
o Private group pension plans administered by insurance companies shall apply a technical interest of maximum 3% for future rights, earned after January 1, 2004;
o Private pension funds have to strengthen the premium reserves for accrued benefits as well, applying 3% instead of 4% when calculating the reserves.
The deadline for a submission was August 1, 2003. At this moment, the proposals for the legislation are not finalised. However, we know that main players in the pension market outside the insurance industry are against these discriminatory plans. Their reasoning ought to weigh heavily.
If the proposal passes through in its present form, it will put the private pension funds in a competitively unfavourable situation. The result could be a large scale conversion of pension funds to pension plans in the private insurance companies. The firms would, as a result, not be burdened with the increase in the statutory reserve for the pension rights already earned.
Reidunnn Falk is an actuary at Nordea Pension Services, in Norway, part of the International Benefits Network