New solvency regulations for pension funds have been sweetened by rules making it easier for them to invest in infrastructure 

Key points

• Norway has decided to adopt Solvency II-like requirement for pension funds
• Under new solvency rules a commitment to future capital contributions from employers can be taken into account
• Special provisions in new rules have been included to make it easier for pension funds to invest in infrastructure
• A new pension solution has been agreed for public-sector employees

In June the Norwegian government finally decided to forge ahead with its proposal to bring in new solvency requirements for pension funds, which would be along the same lines as those already applying to the country’s insurers.

The ministry of finance described the solvency requirement for pension funds as a simplified version of Solvency II, and says it will capture risk throughout a business, and are based on market values.

Siv Jensen, the minister of finance, has said the requirement – contained in the draft regulation amending the regulation in the Financial Companies Act (Finansforetaksloven) of April 2015 – is based on a stress test of which pension funds have had many years experience. All of the country’s pension funds are in a good position to meet the demands from January 2019, according to Jensen.

Calculations from the Norwegian FSA (Finanstilsynet) show pension funds had an average of 60% more equity in June 2017 than they needed to meet the requirement.

Up to now, Solvency II, which has been in force since January 2018 for insurance companies, has not been obligatory for pension funds (pensjonskasser) in Norway. Many pension providers in Norway are incorporated as insurers, such as Oslo Pensjonsforsikring (OPF) and Kommunal Landspensjonskasse (KLP).

Pension funds have been able to follow the old regulatory framework. But the Norwegian government argued that since the Solvency II draft was proposed in 2014, it had seen that pension funds and life insurers competed in the same market, and therefore had to be subject to the requirements that were as similar as possible.

“In 2016 it became clear that no solvency demands for pension funds would be forthcoming within the new EU rules, and the Norwegian FSA proposed new requirements”

In 2016, the ministry said, it became clear that no solvency demands for pension funds would be forthcoming within the new EU rules, and in the same year, the Norwegian FSA proposed new requirements in Norway. Parts of the new requirement will be phased in gradually by 2032, in the same way as Solvency II for insurance companies.

Pension funds will have to meet the new solvency demands – calculated according to the transitional rules – from January 2019. Within the new rules, a commitment to future capital contributions from employers can be taken into account in calculating the requirement for pension funds, depending on the extent of the obligation’s security. 

The introduction of the requirements has been criticised by the Norwegian Association of Pension Funds (Pensjonskasseforeningen) as being not only “unfortunate and unnecessary” but also in conflict with the EU’s IORP II regime for occupational pension providers. The capital requirement under the new rules is based on a modified version of the so-called Stresstest I, which was in line with Solvency I, but involves less administrative work, according to the association. The quantitative restriction in the pension fund regulation has been removed in the new rules, it says.

However, the ministry of finance sweetened the pill of the new solvency demands by choosing to announce special provisions in the rules making it easier for pension funds to invest in infrastructure. According to the proposal, entitled ‘Life insurance company ownership of non-insurance business’ (Livsforsikringsforetaks eierskap i forsikringsfremmed virksomhet), rules on insurance and pension companies’ investments in ‘non-insurance’ (forsikringsfremmed) businesses are to be made more flexible. 


The idea of the draft legislative amendment is to give insurance companies and pension funds greater flexibility in asset management, enabling them to invest more easily in infrastructure projects and certain other assets. Minister of finance, Siv Jensen, said there was a “need for major investments in infrastructure in the next few years”, but that insurance companies and pension funds managed capital that had to be placed safely. 

As the law stands in Norway, insurance and pension firms may not conduct any business other than insurance, but they can invest up to 15% of assets in companies that carry out non-insurance activities without this being considered contrary to the regulation. This 15% limit is to be abolished, according to the draft, and instead, the line between investment in – and operation of – non-insurance activities will be judged by the FSA case by case.

The proposal was based on a consultation draft from the FSA, which suggested the changes should apply solely to insurance companies. Lifting the limit was seen as reasonable since insurers had complied with Solvency II requirements since 2016. The ministry argued that since it was now simultaneously laying down the corresponding capital adequacy requirements for pension funds, it was appropriate to abolish the same limit for pension funds too. 

The new requirement also contains separate, more relaxed rules on how much equity pension funds must have to back their infrastructure investments – similar to the current rules for insurers.

The new pension solution for public sector employees finally fell into place in March, following discussions between ministry of labour and social affairs and labour and employer organisations LO, Unio, YS, Akademikerne, the Norwegian Association of Local and Regional Authorities (KS) and Spekter. 

In June, the plan received backing from the last of the trade unions involved, paving the way for the necessary legislation to be drafted to enact the proposals.

Stakeholders in Norway have been debating the issue of creating a new pension scheme for public sector workers on-and-off for nearly a decade. Changes made in 2009 to the existing scheme to account for rising longevity had created a problem because it meant members born in 1959 or thereafter had pensions that were much lower than those of earlier cohorts. 

The proposed new scheme makes it easier from a pensions perspective for people to change jobs during their careers from the public to the private sector – and the reverse.

Government considers infrastructure for oil fund

Amid the perpetual public debate in Norway over how the Government Pension Fund Global (GPFG) should invest its NOK8.5trn (€887bn) fortune, the government indicated in April that it will consider whether the fund should be allowed to invest in renewable energy infrastructure.

The finance ministry announced it would assess whether such investments could be done within the GPFG’s special environment-related mandates.

The new idea came, however, within an announcement which closed the door – for the time being at least – on unlisted infrastructure investments and private equity for the GPFG. The fund divides its resources between the asset classes of listed equities, fixed-income securities and unlisted real estate.

The manager of the fund, Norges Bank Investment Management (NBIM), has been arguing for the last few years that the fund should extend its investment universe to include unlisted infrastructure.

In January 2018, NBIM wrote to the government advising it to broaden the investment universe to include unlisted equities – a topic which had been investigated by a specially-commissioned expert group in late 2017.

NBIM also said in November 2017 that the fund should divest its oil and gas equities – a move which could have seen it selling off NOK300bn of investments – on the grounds that this would reduce the state’s overall financial exposure to oil and gas.

But in April, the manager came up with some other suggestions for achieving the same aim, such as using “other instruments” to lower the national economy’s vulnerability to a permanent drop in oil prices.

It also addressed concerns that by using index providers’ current classifications, a move away from oil and gas would involve shedding alternative energy providers too. NBIM said the equities of the latter could be kept in the GPFG’s benchmark index even if it did eventually remove oil and gas producers and distributors.