A hybrid framework is set to boost competition in the municipal pensions market
- A new hybrid public sector pension was approved by parliament in June. Aims include increasing flexibility for scheme members
- Simplified solvency capital requirement took effect for pension funds in January
- The EU’s IORP II directive is not yet included in a European Economic Area agreement but Norway has passed draft legislation
- Legislation for a single ‘own pension account’ and a stakeholder group has convened to hammer out the detail
- The GPFG sovereign fund is to divest upstream oil and gas companies. The central bank has been tasked with devising the phaseout plan
Following years of negotiation and debate, the rules around Norway’s new public sector pension scheme were finally approved by parliament in June (Prop. 87 L (2018–2019).
The scheme, which covers central government and municipal staff, has been designed to make it worthwhile for individuals to stay in work for longer. It also ensures those who are forced to end their careers early are catered for.
The new scheme will also make it easier for individuals to switch jobs between the public and private sectors, according to the Finance Ministry. One of the main problems with the old scheme was that changes made in 2009 to account for rising longevity had left people born in 1959 or later with much lower pensions than the previous cohort.
The reform will take some time to apply in full, with many scheme members continuing to be subject to current rules and transitional rules for decades to come, according to SPK, the Norwegian Public Service Pension Fund.
Competition in the municipal pensions market is expected to widen as a result of the new pension scheme which, as a hybrid arrangement, has lower barriers to entry for potential new providers than its predecessor, the existing defined-benefit (DB) scheme.
Norway welcomes return of prodigal stocks
Two of Norway’s largest pension funds moved to bring five international stocks back into their investment universes around the end of June. They hailed positive changes in the companies’ business behaviour since being blacklisted.
Norges Bank Investment Management (NBIM), manager of the NOK9.1trn (€938bn) Government Pension Fund Global (GPFG), announced it had revoked exclusions applying to US retailer Walmart, the mining company Rio Tinto, the aerospace firm General Dynamics, Canadian fertiliser specialist Nutrien and Mexico’s Grupo Carso.
Days later, the NOK692bn municipal pensions giant Kommunal Landspensjonskasse (KLP) said that, having considered the recommendations made by the GPFG’s Council on Ethics regarding these companies, it had decided to follow suit.
“KLP is happy to invest in these companies once again,” said Jeanett Bergan, head of responsible investments at KLP Kapitalforvaltning. “They are all being included after a positive change in the companies’ businesses.”
According to KLP, Rio Tinto and Rio Tinto were excluded in 2008 following an assessment of the risk of serious environmental damage related to the Grasberg mine in Indonesia. But the company had now made it clear to the Council on Ethics that it had signed an agreement to sell its interests in the mine. “Rio Tinto is one of the world’s largest mining companies and has previously been a large coal producer. In 2018, the company sold out of coal completely,” says Bergan.
Meanwhile, Walmart Inc and Wal-Mart de Mexico were blacklisted back in 2003 after an assessment of the risk of gross or systematic human rights violations, KLP said. The council now considered, however, that the basis for this exclusion no longer applied, it said.
Grupo Carso, banished in 2011 because of its involvement in tobacco production, has made it clear that it has withdrawn from this activity, and General Dynamics – excluded in 2005 on the basis of cluster munitions production – had told the council this production was over, according to KLP.
Finally, the pension fund said the council was satisfied that Nutrien – formerly the Potash Corporation of Saskatchewan – which earned a blacklisting in 2011 following an assessment of the risk of breach of fundamental ethical standards in connection with its operations in Western Sahara – was no longer conducting the problematic business.
The EU’s IORP II directive took effect in January and features a renewed focus on governance, communication standards. It also involves investing along prudent-person lines and the improvement of internal risk management functions. It was not yet included in the EEA (European Economic Area) agreement which is relevant for Norway, when the Norwegian Financial Supervisory Authority (FSA) published its June 2019 Financial Supervision report.
The FSA said the directive is based on minimum harmonisation, with room for manoeuvre to impose stricter rules on implementation in Norwegian law. It had already made use of this leeway by adopting a new, simplified solvency capital requirement for pension funds in January 2019.
This separate solvency requirement for occupational schemes, which is similar to the rules for insurers, has been criticised by the Norwegian Association of Pension Funds for conflicting with IORP II.
The FSA said in its June report that Norwegian pension funds meet the new solvency requirements overall, although there were wide differences between them.
In June, the Finance Ministry sent out a consultation memorandum containing proposals for the implementation of assumed future EEA obligations corresponding to IORP II, with a deadline for responses of 24 October 2019.
Separately, the legislative change introducing an individual consolidation ‘own pension account’ concept was adopted by the Norwegian parliament in April, (Prop. 40 L (2018–2019).
These new rules mean employees in companies with defined contribution (DC) pension schemes will gather all their pension capital certificates and manage their pension assets together with their active pension earnings in one pension account. The latter can be managed in their current employer’s pension scheme or with a provider of their choice.
In June 2019, the Finance Ministry invited the social partners, industry organisations and the Consumer Council to join a group to prepare for the introduction of the rules for the own pension account.
Elsewhere, the FSA said a proposal has been put forward to abolish the rule that an employee must have been employed for at least 12 months to be entitled to receive their earned pension capital. Under the new plan, workers will receive their earned pension capital when they resign, irrespective of the length of employment.
In June the Finance Ministry announced it had set up a working group to discuss pensions contributions from employees under 20, and those working less than 20% of the time. The group – to include labour-market and employer organisations LO, YS and NHO, enterprise federation Virke, the Ministry of Labour and Social Affairs and the Finance Ministry – is to submit its report by the spring of 2020.
Regarding the legal framework around Norway’s sovereign wealth fund (SWF), the Government Pension Fund Global (GPFG), in October 2018 the idea of spinning off the fund’s management into a separate operation from the central bank was rejected. Norges Bank Investment Management (NBIM) should remain within the bank, Norges Bank, the Finance Ministry ruled.
In March 2019, the ministry announced it had decided against the idea that the fund should divest almost all oil and gas stocks, and instead proposed that the GPFG sell off NOK66bn (€6.6bn) worth of exploration and production (upstream) oil and gas firms only – corresponding to 1.2% of the fund’s equity holdings. This was endorsed by parliament in June, and the ministry asked Norges Bank at the end of that month to assess how the phaseout should be executed, giving a 13 September deadline for this evaluation.
In April, the ministry acted to clarify certain rules in a bid to allow the climate criterion of the GPFG’s ethical investment guidelines to be implemented fully – for the first time since it was brought in three years before. This clarification took the form of detailed replies to queries from NBIM.