For Norway, the most significant development in the past 12 months has been the introduction of legislation designed to encourage greater take-up of defined contribution (DC) pension schemes. The move brings the country further into line with Europe, where there is a continuing move away from defined benefit (DB) towards DC systems
The shift from unfunded to funded pension schemes is already underway in Norway. Structural changes in the management of healthcare have led to a plan to merge the non-funded Norwegian public service pension fund Statens Pensjonskasse (SPK) and the funded Kommunal Lanspensionskasse (KLP), a mutually owned insurance company specialising in insurance and financial services to the municipal sector.
The merged company would be the country’s largest life insurance company, both in terms of the number of customers and annual premiums. It would have 1.34m eligible members – almost a third of the population. The two companies currently pay out a total of NKr15bn E1.9bn) in pensions each year. When the merger is completed in 2003, this would be invested in the stock market rather than paid to the treasury.
The Norwegian Confederation of Trade Unions (Landsorganisasjonen i Norge, LO), in particular, wants to encourage higher occupational pension coverage. All public sector employees in Norway are covered by supplementary pensions through their employment contracts. However, coverage in the private sector is far lower. LO estimates that almost 30% of its members lack any form of occupational coverage.
Trade union worries about low occupational pension coverage in the private sector have been accompanied by fears that the National Insurance Scheme (Folketrygden), the core of the Norwegian pension benefits system, will shrink to a first pillar scheme that provides only a universal minimum pension. The scheme is currently a two-tier system with a universal flat-rate pension available to all, combined with an additional earnings-related supplementary pension.
Until now, the National Insurance Scheme has been pay-as-you-go (PAYG), with no fund set aside for future pension obligations. LO wants to strengthen the scheme’s role by siphoning off some of Norway’s Petroleum Fund, currently worth NKr386bn (E47.66bn) into future pension payments.
This idea has won support from a number of quarters, including the governor of the central bank and the OECD. The OECD report on Norway, published in February, made a series of controversial proposals for reform. It proposed restructuring the National Insurance Scheme (NIS), by shifting the indexation of pensions, partly from wages to prices, and by calculating pension rights over the entire work history instead of the best 20 years, as at present. It also proposed merging the various types of occupational pension schemes with the earnings-related part of the NIS to ensure that the retired population is fully covered.
The finance minister, Karl Eirik Schjøtt-Pedersen, now plans to set up a public committee with representatives from the political parties, with a mandate to consider and propose changes to the national pension system.
One idea that has been floated by the government is that businesses could be required to put some or all of their employees’ supplementary pensions into a pension fund currently financed by the NIS. Companies would be asked to finance pension schemes totalling between NKr30bn (E3.7bn) and NKr70bn (E8.7bn). The government would reduce their payroll taxes correspondingly to cover the expense of the scheme.
The National Insurance Scheme Fund was pushed centre stage in May when Sampo of Finland announced plans to take over Oslo-based insurer Storebrand. The fund, which owns 10% of Storebrand, has conditionally accepted Sampo’s bid, against the wishes of parliament and government. The state backs a merger between Storebrand and Den norske Bank, in which it controls a major stake.
Den norske Bank recently acquired almost 10 % of Storebrand. Since the takeover requires the agreement of 90% of Storebrand shareholders, the National Insurance Scheme Fund’s stake may no longer be decisive.
Supplementary pensions will come under scrutiny this year. The government is establishing a Commission to consider, among other things, whether the earnings-based part of supplementary pensions should be transformed from a PAYG to a funded system.