Norway: Tax incentives for pension saving
Government plans taxation measures to encourage the population to save for retirement
• Taxation on private pensions is to change to remove the savings disincentive.
• A new pensions tax proposal also aims to increase self-employed access to pension saving.
• The regulator has proposed Norwegian pension funds be subject to simplified capital requirements.
• Norway’s sovereign wealth fund (GPFG) could be separated from the central bank.
Tax regulation on private pension saving is set to change after a government proposal put forward in May that aims to address current disincentives.
In a planned measure that forms part of the revised 2017 budget, Prime Minister Erna Solberg’s government is hoping to encourage the population to put more money aside for retirement.
Under the new new tax-favourable scheme that has been drafted, pension payments in retirement will be subject to the same level of tax as the tax relief that contributions have attracted.
According to the existing individual pension savings scheme (IPS), contributions are deductible against general income tax, but pension payments from the scheme in retirement, on the other hand, are taxed as pensions income.
The tax on pensions income is higher than general income tax alone, because it includes general income tax, step tax (trinnskatt) and social security contributions (trygdeavgift).
The new scheme, as drafted in the revised budget, will be tax-deductible against general income tax and payments in retirement will be taxed at the same rate.
Returns on assets in the new scheme will – as with the current IPS – be exempt from capital tax (formuesskatt) and current income tax (løpende inntektsskatt).
There will be no limit on total savings in the scheme. The ceiling on the annual amount that can be saved in the new scheme is being increased to NOK40,000 (€4,300), compared with the current NOK15,000 yearly limit on IPS contributions.
Also proposed, is a measure to increase access for the self-employed to tax-favourable pension savings by raising the limit on contributions to 6% of personal income from self-employment from the current level of 4%.
The finance ministry is aiming for the scheme to come into force in the autumn, and its conditions will then apply for the 2017 tax year.
Discussion on the issue of new solvency regulation for pension funds has continued over the past 12 months.
The proposed legislation is based to a large extent on the EU’s Solvency II framework rather than IORP II – the EU rules around pension funds.
Early this year, a consultation from the finance ministry on new capital requirements for pension funds met with calls from some funds to be allowed to use a reduced stress factor for investments in mortgage-backed bonds and infrastructure. That is in line with the position for life insurance companies.
The Norwegian Association of Pension Funds (Pensjonskasseforeningen), the Confederation of Norwegian Enterprise (NHO), the Norwegian Confederation of Trade Unions (LO), the Pensioners’ Association (Pensjonistforbundet) and the engineers and technologists’ union NITO came out jointly to say that the country’s pension funds were solid and that regulatory changes would cause great inconvenience for businesses.
The Norwegian central bank, however, has backed the use of simplified Solvency II requirements for pension funds.
Norway’s financial regulator, the FSA (Finanstilsynet), is proposing that pension funds be subject to a simplified version of the new capital requirements for insurance companies under the domestic version of the EU Solvency II regime.
Under this proposal, new capital requirements for pension funds should be introduced with effect from January 2018 but include a transitional period until January 2032.
The finance ministry said it would consider the consultation feedback and assess the need for these capital requirements along with the design of the regulation around them.
In June, a commission set up to review Norges Bank and the Norwegian monetary system recommended that the €858bn Government Pension Fund
Global (GPFG) be managed by a separate statutory entity. At present it is managed by the central bank.
The commission reasoned that central banking and investment management were different activities. With the oil fund having grown so large, both of these tasks now place greater demands on the board, senior management and the organisation of the central bank than previously.
However, the commission, chaired by Svein Gjedrem, warned against splitting the GPFG into several entities, saying this would give rise to extra costs and management challenges.
The GPFG’s mandate was changed earlier this year by the government, increasing the strategic equity allocation of the fund to 70% from 62.5% previously but, once again, it rejected the idea of including unlisted infrastructure assets in the fund’s investment.
The finance ministry also rejected the idea that the GPFG should divest from oil and gas stocks. It argued that such a change would not make the country less vulnerable to a permanent decline in petroleum revenues.
The government has been aiming more broadly to make the Norwegian economy less dependent on oil and more responsive to change.