Since 2006, employers are mandated to provide their employees with either a defined benefit (DB) or a defined contribution (DC) pension benefit, financed by a minimum employer contribution of 2% of earnings. Workers may make voluntary contributions. These employer-provided private pensions supplement the country’s public pension system, which consists of a flat-rate basic pension and an earnings-related benefit.

In an effort to address rising pension expenditures because of the rapid aging of Norway’s population, on January 1, 2011 a new law came into force, introducing several amendments to the pay-as-you-go National Insurance Scheme.[1] The reforms include a flexible retirement age and modified indexation rules aimed at encouraging longer working lives and link benefits to longevity trends. The reforms are based on year of birth, in a way that (i) those born in 1963 or later have their pension based entirely on the reformed system, (ii) those born between 1943 and 1953 accrue benefits in accordance with the old system, and (iii) for those born between 1954 and 1962, benefits will accrue proportionally under both regimes.

Key elements of the new system include:

A flexible retirement age ranging from ages 62 to 75 that will be phased in beginning in 2011. Individuals will be able to draw a pension and continue to work; the benefit amount will be adjusted by a longevity factor based on the age of the individual at the time of retirement. Under the current rules, the normal retirement age is 67, and individuals can defer their pension past that age—up to age 70—and accumulate credit toward a higher benefit.

A change in the calculation of old-age benefits to be based on the worker’s average lifetime contributions (from ages 13 to 75) plus credits for missing periods that are due to unemployment or caregiving.In addition, pension benefits will be adjusted annually by wage growth minus 0.75% points (benefits will not be adjusted downward in the event of declining wages).

An income-tested pension replaced the flat-rate contributory public pension.The new income-tested pension is guaranteed to be at least as high as the minimum pension payable under the old system.

On January 25, the Financial Crisis Commission[2] released a report analyzing the causes of the financial crisis as it affected Norway and proposing recommendations for how to better position the country against future economic shocks. The report evaluates defined contribution (DC) plans, which cover nearly 1 million Norwegian workers (almost half of the total labor force). It found that changes should be made to reduce workers’ vulnerability in the event of future crises. In addition, some recommendations are made , including the use of stricter capital requirements for financial institutions, more effective monitoring of risk, and the imposition of new fees and taxes to supplement financial market regulations.

According to the report, certain aspects of occupational pension plans that should be studied further are workers’ and retirees’ exposure to market risk as interest rates and investment returns fluctuate in response to worldwide market forces; the "level and predictability" of employer pension costs; and, the plan sponsors’ financial health. To address these issues, the report proposed introducing alternative products that combine properties of both DC plans and DB plans.

Even though workers in DC plans may choose among different risk profiles, most of those workers do not make a choice and are placed in the default fund. For this reason, the report focuses on the default risk recommending better guarantees for workers to ensure that exposure to market risk is minimized, particularly as workers approach retirement age. Investigations by the commission concluded that participants in DC pension plans were overwhelmed by the growing complexity of financial products, leading in many cases to decisions that were not in line with their long-term retirement income needs. The report therefore recommended that information provided to consumers by financial institutions should be better tailored to meet the needs of the plan participant, and that the terminology and format of the information should be standardized and rendered more comparable across different financial institutions.

You can find an English summary of the report at


[1]The government estimated that without the reform the old-age pension benefits as a percentage of gross domestic product would have increased from approximately 6% in 2001 to approximately 15% in 2050. Over roughly the same time, the ratio of workers to pensioners is expected to decline from 4.6:1 in 2006 to 2.7:1 in 2050.

[2]The Commission, made up of representatives from a variety of sectors—including the social partners, the financial sector, consumer groups, the government, and academic institutions.


Article with courtesy of Social Security Online

Sources:"The Norwegian Pension System: The Economic Effects of Funded Pension Benefits," University of Oslo, August 18, 2008; "Norway: Social Security Pension Reform Bill Introduces Flexible Retirement Age from 62 to 75," ibis eVisor, March 20, 2009; "Norway: New Social Security Reform Law Takes Effect in Stages," ibis eVisor, June 19, 2009; "Norway: New National Insurance Pension System to be Introduced," Towers Watson, August 2010; "Long-Term Fiscal Effects of Public Pension Reform in Norway," University of Bergen (Norway), Centre for Economic Studies in Social Insurance Working Paper, August 2010; "Pensions at a Glance 2009: Retirement-Income Systems in OECD Countries," OECD, June 2009; "Bedre Rustet mot Finanskriser (English summary)," Ministry of Finance, January 2011; "Norwegian Government Must Reform DC System, Report Urges,", January 25, 2011; Ministry of Finance press release, January 25, 2011.

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