Oil alone not enough to support ageing Norway, IMF warns
NORWAY - Reforming early retirement provisions is one of the most pressing issues to ensure a sustainable pension system in the future, the International Monetary Fund (IMF) has told the Norwegian government.
Despite what the IMF describes as an "enviable" fiscal position, a good development of the Government Pension Fund (GPF) and recently-agreed pension reforms, the organisation has stressed in a new report government expenses in relation to the GDP would need to be cut by seven percentage points over the coming decades in order to sustain the current pension system.
One of the problems the IMF wants to see addressed is the current provision for early retirement which is still widely used - an issue the government has already announced it intends to start negotiations on.
In its latest report on Norway, the IMF pointed out assets from the Government Pension Fund will only fill one-fifth of the gap in the pension system by 2060.
Moreover, oil production is assumed to decline slowly from 2030 which means the fund's assets will peak at 240% of the Norwegian mainland's GDP in 2022. This is therefore a concern to the IMF as the Government Pension Fund - formerly known as the Petroleum Fund - is financed solely by oil revenue.
At the same time, the old-age dependency ratio in the country is projected to rise by 80% over the next 43 years as the ratio between the number of people of working age and those over 65 is projected to decline from 4.4 in 2005 to 2.4 by 2050.
The most recent pension reforms passed by parliament included a flexible replacement rate - the ratio of an individual's average pension and income in given time periods - which increases for people retiring after the statutory pension age of 67, along with the removal of regulations which previously saw pensioners lose part of their benefits if they continued to work.
Furthermore, benefits will be adjusted with longevity assumptions and they are based on a lifetime earnings average rather than the best earnings over 20 years.
This whole raft of reforms is expected to reduce pension spending by about 3% of GDP by 2050.
"However, the saving from the agreed reform will probably be insufficient to ensure long-term fiscal sustainability and therefore further reform should be considered," the IMF concluded in its report.