When Norway’s new social security model came into effect on January 1, 2011, there was little reaction from the Norwegian people – and certainly no strikes or riots as seen in some European cities when pension changes are suggested. Perhaps this was because the new model had been on the way with debates and adjustments since 2001.
The new model is based on three key objectives:
- People should find it worthwhile to work
- There is flexibility to draw full or partial retirement pensions between ages 62 and 75
- Future pension and benefits costs must be kept under control
New calculation model
Under the new model, retirement pension accumulation is no longer based on the average of the 20 best career years (out of 40), but is now on an ”each year counts” principle. This means that in theory, income from age 13 to 75 is included in the calculation.
The longer you work, the more you get
While the normal retirement age for men and women was previously 67 for both social security and company pension plans, it is now flexible. Employees can draw a pension from age 62, in full or in part, or wait until age 75.
Also new from January 1, 2011, is that people may earn an income in addition to receiving retirement benefits from social security and company pension plans without any reductions being made to their income or benefits.
It is noteworthy that the rules for company pension plans (DB and DC) are still based on the old social security model. Previously, the majority of company pension plans in Norway were DB plans, tailored to supplement social security benefits. The tax rules on tax relief for employers on premiums paid are also still based on the old system.
Shift from DB to DC plans
Recent years have seen an accelerating shift from DB to DC solutions, helped by the introduction in 2006 of mandatory DC company pension plans for all companies, covering 2% of pensionable salary. Since 2007, no new DB plans have been started, and transitions from existing DB plans to DC plans initially increased. However, since 2010, there has been a real slowdown in switching plans from DB to DC.
2012 expected to bring further pension plan changes
A comprehensive report is expected during 2012 on new rules and products adjusted to the new social security model. The report will be extremely important for the life insurance industry and company pension plan clients.
It is expected that the report will recommend:
- New and higher maximum DC contribution percentages for existing and new company DC plans
- Adjustments to the design and rules for existing DB plans to fit the new social security model
- Indexation of running pension benefits, with new rules
- Possible hybrid solutions that mix DB and DC plan solutions in order to take into consideration the “each year counts” accumulation of retirement benefits
- Pricing of administration costs for paid-up policies
New thinking, new costings, new product designs, new rules, new laws, and even stricter competition between life insurers are all on the menu for 2012.
As noted above, in anticipation of the report, there was a reduction in transitions from DB to DC plans in 2011, as well as less switching of insurers and amending existing plans. Corporate clients are naturally unsure whether to make changes now (while the rules are still clear and products and IT systems work well), or to sit tight and wait for the reforms. Norwegian Network Partner Vital Forsikring advises talking to your insurance adviser in Norway now - and thinking hard about acting soon.
Vital Forsikring
Norway’s largest life insurance company, Vital Forsikring is part of the DnB NOR Group, Norway’s biggest financial services group. Vital has changed name as of November 11, 2011 to DNB Livsforsikring ASA. The insurer offers a complete range of group and individual products, comprehensive financial advice, administration and management instruments for autonomous funds, as well as health awareness programmes. DNB Livsforsikring (formerly Vital) held 42.4% of the total life insurance market, 43.4% of all company DB pension plans, and 28.5% of company DC plans in 2010.
For more information
please visit www.dnb.no
or contact Mr. Tor Myrseth
E-mail: tor.myrseth@dnb.no
Phone: +47 934 07 43 4
- People should find it worthwhile to work
- There is flexibility to draw full or partial retirement pensions between ages 62 and 75
- Future pension and benefits costs must be kept under control
New calculation model
Under the new model, retirement pension accumulation is no longer based on the average of the 20 best career years (out of 40), but is now on an ”each year counts” principle. This means that in theory, income from age 13 to 75 is included in the calculation.
The longer you work, the more you get
While the normal retirement age for men and women was previously 67 for both social security and company pension plans, it is now flexible. Employees can draw a pension from age 62, in full or in part, or wait until age 75.
Also new from January 1, 2011, is that people may earn an income in addition to receiving retirement benefits from social security and company pension plans without any reductions being made to their income or benefits.
It is noteworthy that the rules for company pension plans (DB and DC) are still based on the old social security model. Previously, the majority of company pension plans in Norway were DB plans, tailored to supplement social security benefits. The tax rules on tax relief for employers on premiums paid are also still based on the old system.
Shift from DB to DC plans
Recent years have seen an accelerating shift from DB to DC solutions, helped by the introduction in 2006 of mandatory DC company pension plans for all companies, covering 2% of pensionable salary. Since 2007, no new DB plans have been started, and transitions from existing DB plans to DC plans initially increased. However, since 2010, there has been a real slowdown in switching plans from DB to DC.
2012 expected to bring further pension plan changes
A comprehensive report is expected during 2012 on new rules and products adjusted to the new social security model. The report will be extremely important for the life insurance industry and company pension plan clients.
It is expected that the report will recommend:
- New and higher maximum DC contribution percentages for existing and new company DC plans
- Adjustments to the design and rules for existing DB plans to fit the new social security model
- Indexation of running pension benefits, with new rules
- Possible hybrid solutions that mix DB and DC plan solutions in order to take into consideration the “each year counts” accumulation of retirement benefits
- Pricing of administration costs for paid-up policies
New thinking, new costings, new product designs, new rules, new laws, and even stricter competition between life insurers are all on the menu for 2012.
As noted above, in anticipation of the report, there was a reduction in transitions from DB to DC plans in 2011, as well as less switching of insurers and amending existing plans. Corporate clients are naturally unsure whether to make changes now (while the rules are still clear and products and IT systems work well), or to sit tight and wait for the reforms. Norwegian Network Partner Vital Forsikring advises talking to your insurance adviser in Norway now - and thinking hard about acting soon.
Vital Forsikring
Norway’s largest life insurance company, Vital Forsikring is part of the DnB NOR Group, Norway’s biggest financial services group. Vital has changed name as of November 11, 2011 to DNB Livsforsikring ASA. The insurer offers a complete range of group and individual products, comprehensive financial advice, administration and management instruments for autonomous funds, as well as health awareness programmes. DNB Livsforsikring (formerly Vital) held 42.4% of the total life insurance market, 43.4% of all company DB pension plans, and 28.5% of company DC plans in 2010.
For more information
please visit www.dnb.no
or contact Mr. Tor Myrseth
E-mail: tor.myrseth@dnb.no
Phone: +47 934 07 43 4