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Norway

Country profiles

Norway

Complementary pensions (Mandatory)

Updated: 31 December 2018

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The following Acts, with associated regulations, provide the main framework of pension schemes legislation:

- Act of 24 March 2000 nr. 16 on Defined Benefit Occupational Pensions;
- Act of 24 November 2000 nr. 81 on Defined Contribution Occupational Pensions;
- Act of 21 December 2005 nr. 124 on Compulsory Occupational Pensions.
- Act of 13 December 2013 nr. 106 on Occupational Pensions

2013: Act on occupational pensions of 13 December; introduces a new type of scheme, being a combination (hybrid) of defined contribution (during period of saving) transferred to defined benefit (payed lifelong) when retired. This also regulate disability pensions (the regulation being transferred from Act on Defined Occupational Pensions)

2005: Compulsory Occupational Pensions Act of 21 December; provides for the shift from voluntary to mandatory establishment of complementary occupational pension schemes; requires all employees to be included in a pension scheme from the first working day and for the pension qualifying age to be 67 years; allows provision of survivorship and disability benefits to remain voluntary; provides for preserved benefits for early leavers; requires the pension capital to be managed in a specific investment portfolio where the investment risk is carried either by the employees or by the employer; contains requirements relating to the composition of the asset portfolio and risk diversification in investment portfolios.

2000: Act on Defined Benefit Occupational Pensions of 24 March; stipulates requirements for defined benefit schemes and also defined contribution schemes exposed to biometric risks; contains rules regarding the pension qualifying age, minimum requirements as to period of service, rules concerning acquisition of a pension and entitlement to a paid-up insurance policy on resignation before the pension qualifying age; contains provisions on retirement pension, including a principle of proportionality in the pension plan among the members (employees) and upper limits to the benefits; provides for disability and survivorship pensions.

2000: Act on Defined Contribution Occupational Pensions of 24 November; regulates defined contribution pension schemes (not based on biometric risks); includes rules regarding the contents of the contribution plan including a principle of proportionality among the members (employees) and upper limits for the contributions; provides for entitlement to the pension capital accumulated on leaving the company; contains rules concerning the pension qualifying age and the acquisition of pension.

2005: Act on Insurance Activity of 10 June 2005; regulates the authorization and operation of life insurance companies and pension funds; provides the legal basis for regulations laid down by the Ministry of Finance that are applicable to both life insurance companies and pension funds (e.g. regulations concerning asset management); implements the provisions of the EU Institutions for Occupational Retirement Provision (IORP) Directive and being updated in 2016 by Solvency II Directives.

1956: Act on Financial Supervision of 7 December; provides for the supervision of financial institutions (including pension funds and insurance companies) by the Financial Supervisory Authority of Norway (Finanstilsynet - FSAN); defines its powers and requires auditors to notify the FSAN of specific events.

 

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Employers must establish, and their employees must join, occupational pension schemes, which may be defined benefit or defined contribution schemes or a combination of those. Defined benefit schemes must provide an annual pension of at least the minimum level of expected benefits defined by law for defined contribution schemes.

Employers which must establish an occupational pension scheme are those that have:

- at least two employees, including persons with ownership interest, who together have working hours and wages that represent 75 per cent or more of a full-time position;
- at least one employee, excluding persons with ownership interest, who has working hours and wages that represent 75 per cent or more of a full time position; or
- employees, who each have working hours and wages that represent 20 per cent or more of a full time position, and together carry out work representing at least the equivalent of two people.

Employers who have a pension scheme in accordance with legislation or collective agreements which apply to state or local authority employees are not covered by the Compulsory Occupational Pensions Act.

The deadline for establishing an occupational pension scheme satisfying the minimum legal requirements was 31 December 2006.

All schemes: All schemes which comply with the applicable regulations receive favourable tax treatment. If the tax authorities become aware that a scheme is not in compliance with the regulations, the right to favourable tax treatment is lost and the authorities may request reimbursement of tax rebates granted in previous years.

Employers may sponsor both a defined benefit/hybrid and a defined contribution scheme at the same time, provided that this does not violate the principles of non-discrimination and proportionality (see section Benefit provisions, Benefit structure / formula).

Employers may also establish occupational pension schemes that do not comply with the applicable legal requirements and thus do not receive favourable tax treatment. Typically, such schemes are established to supplement compliant occupational pension schemes in order to provide for benefits not permitted under the latter, e.g. early retirement benefits or benefits for earnings above the social security ceiling. These supplementary schemes are not covered further in the following sections.

Employers may establish defined benefit schemes, which must be implemented either through the establishment of a pension fund or through an insurance contract with a life insurance company.

Employers may establish defined contribution insurance schemes, which must be implemented through an insurance contract with a life insurance company.

Employers may establish defined contribution savings schemes, which must be implemented through the establishment of a pension fund or a contract with a life insurance company, bank or mutual fund.

The main differences between defined contribution insurance and defined contribution savings schemes are as follows:

- In an insurance scheme, if a member dies before retirement, the member's accumulated capital will go into the insurance collective to help finance the pensions of those who survive. This is called mortality inheritance. If a member dies while receiving an annuity, the survivorship benefit depends on the type of annuity.
- Insurance schemes may provide for disability benefits while savings schemes do not cover disability;
- Insurance schemes must be implemented through contracts with life insurance companies, while savings schemes may also be implemented through the establishment of pension funds or contracts with banks and mutual funds.

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All schemes: Occupational pension schemes are managed by the following institutions supervised by Finanstilsynet: Life insurance companies, pension funds, banks (only defined contribution schemes) and management companies for UCITS (only defined contribution schemes, and also similar EEA institutions). A pension fund is a foundation (an autonomous institution) based on pension schemes established by an enterprise, a municipality or group of enterprises or municipalities. Pension funds based on joint pension schemes are allowed under certain conditions.

The institution through which a scheme is implemented (i.e. the pension fund, life insurance company, bank or mutual fund) is responsible for the administration of the contributions and benefits.

All pension funds and other pension providers mentioned need to be licensed, either by FSAN/the Ministry of Finance or by the home supervisory authorities when the pension provider is a foreign EEA institution.

A pension fund shall have a board of directors, a chief executive officer to carry out the daily administration of the fund, an appointed actuary approved by FSAN and a registered or state authorized auditor. The board shall have at least three members, with one member representing the members of the pension scheme and one member without affiliation to the pension fund or to an employer with a pension scheme in the pension fund. A majority of the members is usually appointed by the sponsor(s).

Employers with 15 or more employees must establish a scheme advisory board consisting of at least three members, of whom at least one must be chosen by the scheme members. The advisory board must be consulted about the scheme administration, investment of scheme assets and before any changes to the scheme rules. It has a strictly advisory role and no decision-making power.

There are no legal requirements for assets to be held by a custodian separate from the scheme manager and no other institutions are involved in the collection or payment of contributions and/or benefits.

A pension fund is usually a non-profit-making institution. However, there is one licensed Norwegian profit-making pension fund offering defined contribution saving schemes in the general pension market.

 

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Covered population

All schemes: Private-sector employees.

Discrimination between men and women is prohibited, but different mortality tables may be used. All employees older than 20 years must be covered, but newly hired employees with less than ten years service before attaining retirement age can be excluded if this is established as a general scheme rule.

Part-time workers must be covered if they work at least 20 per cent of full-time working hours and seasonal workers must be covered if they work at least 20 per cent of full-year employment.

All central and local government employees are covered by occupational pension schemes. However, these public-sector schemes are not regulated by the laws applicable to schemes covering private-sector employees and are not covered further in the following sections.

Self-employed persons may take out an occupational pension scheme.

Enforcement of affiliation

All schemes: Employers must affiliate eligible employees to a pension scheme. Sanctions (fines) are applied if employers do not comply with this requirement.

There is no state run scheme of last resort to which covered persons are affiliated by law if their employer does not affiliate them to a scheme. All employees must be included in a pension scheme from the first working day. All pension providers must be licensed and under supervision. The Insurance Activity Act implements the Solvency II Directive and the Institutions for Occupational Retirement Provision Directive.

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Sources of funds

Member contributions

All schemes: Members in private sector do not usually contribute.

If members of defined benefit schemes are required to contribute, the contribution rate must not exceed 4 per cent of total salary.

It can be agreed between employer(s) and employees that employees must make a contribution or pay a premium to the pension scheme in addition to the employer contribution.

Employer contributions

All schemes: The minimum employer contribution is 2 per cent of salary between 1 and 12 times the National Insurance Fund's basic amount (G). The base amount G was 96,883 Norwegian Kroner (NOK) as of May 2018.

Employers may pay higher contributions for female employees in order to compensate for their higher average life expectancy.

Contributions for part-time employees must be proportional to the contribution that would be paid were the employee working full-time.

Defined benefit schemes: Employer contributions must be calculated annually on the basis of the capital required to secure the pensions that members are earning for service in the year.

Other sources of funds

All schemes: None.

Methods of Financing

All schemes: Funded.

A pension fund or life insurance company providing defined benefit schemes or an insured defined contribution scheme must have technical provisions to cover the liabilities in the pension scheme(s). The technical calculation bases has been strengthened, based on updated statistics on life expectancy and an assumed future decline in mortality.

A surplus of the return in a year may be used to strengthen supplementary provisions. FSAN may, when it deems it necessary due to solvency considerations, order the fund to make such provisions. If the return on the pension scheme(s) in a specific year is insufficient, the guaranteed return may be met by using the supplementary provisions (assigned to the same scheme).

Pension funds (with defined benefit schemes) must have adequate own funds. The absolute minimum base capital is 10 times the National Insurance Fund's basic amount G (NOK 968 830 as of May 2018). Solvency margin requirements had to be met at the latest by 1 January 2010 and Simplified Solvency Capital Requirement by 1 January 2019.

A sponsor is not legally bound to make contributions to correct a deficit, but will often do so. The Ministry of Finance/Finanstilsynet may, in special cases and for a limited period, authorize the pension fund to maintain a capital adequacy/solvency margin that is lower than that specified by law. A short-term financing plan for restoring compliance with the requirements will be required. The Ministry of Finance/Finanstilsynet may also order the pension fund to undertake specific dispositions with a view to meeting capital adequacy or solvency margin requirements.

Asset Management

Defined benefit schemes: In defined benefit (insured) schemes, employers can opt to decide on the composition of the portfolio themselves or leave the asset management to the insurance companies. In the former case the employer bears the risk of funding shortfalls due to poor investment returns and must make additional contributions to restore full funding. No employer has yet chosen this option.

Where the scheme is implemented through a pension fund, the assets may be managed in-house by the pension fund or the asset management may be contracted out to an insurance company or an external asset manager, which must be a credit institution or public limited company authorized under the Securities Trading Act.

All defined contribution schemes: If the scheme is implemented through an insurance company, bank or mutual fund, employers may choose one of the following options for the management of scheme assets:

- collective management of the scheme assets by the insurance company, bank or mutual fund;
- collective management, with the employer deciding on the composition of the portfolio;
- individual accounts, in which case the investment portfolio is determined by each individual member.

Insurance companies managing scheme assets as part of the company's general portfolio provide a rate of return guarantee. No rate of return guarantees are provided in other cases.

If the scheme is implemented by a pension fund, the assets may be managed in-house by the pension fund or the asset management may be contracted out to an insurance company or to an external asset manager which must be a credit institution or public limited company authorized under the Securities Trading Act.

The asset management does not have to be separate from the scheme management. The pension provider may outsource the asset management to insurance companies, banks or specialized asset managers (investment firms) with a licence.

The Board of Directors has the ultimate responsibility for the activities of the Pension Fund. They must ensure that the Pension Fund has in place a system of internal control. The Pension Fund must ensure that assets corresponding to the technical provisions are invested in an adequate manner with respect to the characteristics of the liabilities, as well as with respect to security, diversification of risks, liquidity and return. The Pension Fund must have a system for prudent management and control of its asset management and a system for measuring and monitoring of risks. The Pension Fund must have special skills and exercise special attention and control when using derivatives.

The investment rules are applicable to assets covering the technical provisions, but the general qualitative prudent person rules are applicable to the whole portfolio.

A Pension Fund may invest in derivative instruments insofar as they contribute to a reduction of investment risks or facilitate efficient portfolio management.

Securities and assets not traded on regulated markets may in aggregate not constitute more than 10 per cent of the technical provisions. Unsecured loans may in aggregate not constitute more than 5 per cent of the technical provisions. Net financial receivables in a currency shall at all times equal at least 70 per cent of its technical provisions in the same currency. This does not however apply to a currency if the insurance company, in order to satisfy the requirement of the first sentence, would have had to hold net financial receivables in that currency to a value of 7 per cent or less of its overall assets in other currencies. When calculating net financial receivables, the Fund may, as a principal rule, regard financial receivables in Euros and Norwegian kroner as equivalent currencies. There are some exceptions.

Securities issued by a single issuer and/or receivables from a single debtor may not in aggregate constitute more than 4 per cent of the technical provisions (there are some exceptions).

For mortgage-credit bonds fulfilling certain requirements the maximum is 20 per cent per issuer.

Units in a single UCITS fund cannot constitute more than 10 per cent of the technical provisions. Units in a single non-UCITS fund cannot constitute more than 4 per cent of the technical provisions.

Most of the investment limitations mentioned above for the pension funds will no longer exist by January 2019. At this date, the pension funds will adopt similar solvency/capital requirement as the life insurance companies (following Solvency II).

Furthermore, the pension capital pertaining to the pension scheme may be managed in a specific investment portfolio where the investment risk is carried either by the employees or by the employer. The Pension Acts contain requirements relating to the composition of the asset portfolio and to risk diversification in investment portfolios when the risk is carried by the employees or by the employer. The present principal rules are the same as for UCITS but there might be changes introducing the same quantitative rules as for insurance with guaranteed investment returns.

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Preservation, portability, transferability

All schemes: An employee who leaves the company without entitlement to an immediate pension shall upon termination of membership retain his/her right to a paid-up insurance policy or pension capital certificate, unless he/she has been a member for less than 12 months. The employee may decide to continue paying contributions to individual contracts (see section All defined contribution schemes below). If the new employer sponsors an occupational pension scheme which provides for transfers-in, members may transfer their rights to the new employer's scheme.

If a scheme is implemented through an insurance contract, the with-profits (participating) contract specifying the deferred rights is issued by the insurance company.

All defined contribution schemes: If members opt for deferred benefits, their accumulated capital is converted into individual contracts. The contract is issued by the same institution through which the occupational scheme of the former employer is implemented.

Retirement Benefits

Benefit qualifying conditions

All schemes: Retirement age is 67 for both men and women (the same as under the social security scheme).

For certain occupational groups (e.g. pilots or nurses) a lower retirement age under the social security scheme applies.

New legislation permits retirement pension to be withdrawn from the age of 62 years. The retirement benefits shall when withdrawn before or after the member reaches 67 years old, be recalculated on actuarial technical bases. The member may choose to withdraw just a part of the retirement pension.

Retirement may be deferred until the age of 75.

Withdrawal of funds before retirement

All schemes: Withdrawal of funds before retirement is not permitted.

Benefit structure / formula

Defined benefit schemes: Pension rights accrued in any given year must be proportional to the ratio between the years of actual membership and the total number of years required to obtain full benefits.

Occupational pension schemes are integrated with the social security scheme based on the principle of proportionality: the total replacement rate resulting from social security and occupational scheme benefits combined cannot be higher for high-income than for low-income employees. The total replacement rate must not exceed maximum values, which are fixed separately for different salary bands:


Salary bands in NOKMaximum total replacement rate

 under 6G 100% 
 from 6G to 12G 70%
 over 12G  0%

G - the basic amount in the National Pension Scheme (NOK 96,883 as of 1 May 2018)

The replacement rate in the social security scheme is higher for low-income than for high-income employees, hence participation in occupational pension schemes has little significance for low-income employees.

Most defined benefit schemes aim for a total replacement rate of between 58 per cent and 70 per cent of final salary. Either final salary or average salary may be used in the calculation of occupational scheme benefits. Final salary may be defined as basic salary with or without overtime and supplements, and average salary over the last 2 or 3 years before retirement (up to the social security ceiling) may be used in the calculation of occupational scheme benefits. The social security ceiling is NOK 1,161,960 (as of May 2018), which is twelve times the basic amount G in the National Pension Scheme).

Salary levels for earlier years may only be taken into account to prevent a potential reduction in pensions due to fewer working hours in the case of flexible retirement, or due to reduced end-of-career salary levels. Pension rights for part-time employees are generally based on the corresponding full-time salary divided by the ratio of part-time to full-time employment.

The minimum accrual period for full pensions may be 30 years and the maximum may be 40 years.

Pensions are paid by the pension provider.

All defined contribution schemes: The accumulated capital must be distributed over a minimum of ten years. Each retiree may choose between a life-long annuity and an annuity payable for a fixed period. The annuity may be provided by the institution administering the scheme, except if a retiree of a scheme implemented through a bank or a mutual fund opts for an annuity in the form of an insurance contract, in which case the annuity must be bought from an insurance company.

If the annuity is not based on an insurance contract, the accumulated capital remains in the institution administering the scheme.

All schemes: Lump-sum benefits are prohibited.

Benefit adjustment

All schemes: Indexation of benefits depends on investment returns or a binding agreement or promise from the employer to finance indexation in accordance with the regulation of the basic amount in the National Pension Scheme.

Survivors

Benefit qualifying conditions

Defined contribution insurance schemes: There is no provision of survivorship benefits if the member dies before retirement, but it is possible to have a supplementary defined benefit scheme with survivorship benefits.

All other schemes: Provision of survivorship benefits is voluntary. Qualifying conditions under which benefits are provided are laid down in the pension scheme rules, which have to be in accordance with the rules in the Act on Defined Benefit Occupational Pensions.

Benefit structure

Defined benefit schemes: If provided, survivorship benefits are a percentage of the deceased member's projected or actual old-age pension, or a percentage of the deceased member's salary, and are paid to the spouse (including same sex spouse and, if the scheme so decides, also an unmarried cohabitant if they had cohabited for five years at the date of death).

Defined contribution savings schemes: If a member dies before retirement, the accumulated capital is paid to eligible survivors. It must be used first to buy an insured annuity guaranteeing yearly payments of up to NOK 96,883 (as at May 2018) for each orphan up to the age of 21. If there are no eligible orphans, or if there is excess capital available, a fixed term annuity (i.e. for ten years) must be bought for the spouse (including same sex spouse and unmarried cohabitant if they had cohabited for five years).

If a retired member dies whilst in receipt of a pension paid by the institution administering the scheme, the above-mentioned capital remains in the individual account at the date of death.

If a retired member dies whilst receiving an annuity based on an insurance contract, the survivorship benefit depends on the type of annuity.

Benefit adjustment

N/A

Disability

Benefit qualifying conditions

Defined contribution saving schemes: There is no provision of disability benefits but insurance cover granting contribution exemption during disability, relative to the degree of disability, is compulsory. In addition it is possible to have a supplementary disability defined benefit scheme.

All other schemes: Provision of disability benefits is voluntary but most schemes do provide them. Where provisions are made, all members must be covered for degrees of disability of 20 per cent or more. Any other qualifying conditions are laid down in the pension scheme rules. Insurance cover granting contribution exemption during disability, relative to the degree of disability, is compulsory.

Benefit structure

Defined benefit schemes: If the scheme provides disability benefits, the disability pension is determined as a percentage of the individual member's salary base.

Benefit adjustment

N/A

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Protection of Assets

All schemes: Scheme assets must be held separately from the assets of the sponsoring employer.

Financial and Technical Requirements / Reporting

All schemes: Statutory solvency standards apply to both life insurance companies and pension funds. Life insurance companies are subject to EU solvency rules and from 2019 the pension funds are subject to similar regulations.

Pension funds must submit annually to the FSAN:

- a report proving compliance with the statutory capital standard;
- the annual report and certain key figures /statistics on their operations.

The FSAN requires more comprehensive reports from insurance companies, banks and mutual funds.

Whistleblowing

All schemes: Auditors must report immediately to the Financial Supervisory Authority of Norway (FSAN) any circumstance which comes to their knowledge concerning an institution which they audit which may:

- involve violation of legal requirements, if such violation may lead to the withdrawal of the institution's authorization;
- harm the continued operation of the institution;
- imply that the accounts will not be approved or the accounts will be qualified.

The approved actuary in pension funds also has duties to report to the FSAN under certain circumstances.

Standards for service providers

All schemes: Individual auditors must be authorized by the Financial Supervisory Authority of Norway (FSAN) and must have:

- approved education;
- three years experience;
- passed a practical examination;
- good repute;
- in every three year period at least 105 hours of continued professional education in courses approved by the FSAN;
- security guaranteeing at least NOK 5 million for any liability.

Auditing firms must be majority owned by authorized individual auditors, and the majority of the members of the board of directors must be such auditors.

Actuaries must be approved by the FSAN.

Fees

All schemes: There are no legal requirements.

Winding up / Merger and acquisition

All schemes: Detailed regulations govern the conditions under which a scheme may be wound up and the allocation of scheme assets in such a situation.

Bankruptcy: Insolvency Insurance / Compensation Fund

All schemes: There are no requirements to insure against financial loss, and no compensation fund exists.

Disclosure of information / Individual action

All schemes: The sponsoring employer must provide information to new scheme members concerning the scheme.

Thereafter, the institution administering the scheme must provide detailed information annually to scheme members on their accrued rights or accumulated capital.

Members may go to court to have the sponsor's duty to establish the pension scheme determined, and similarly its duty to pay the annual contributions to the pension scheme.

Other measures

All schemes: None.

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Taxation of member contributions

All schemes: Employee contributions are deductible from general income, which is the basis for the calculation of the flat-rate 28 per cent general income tax.

Employee contributions are, however, not deductible from the so-called personal income, which is the basis for the calculation of social security contributions and the personal progressive income tax.

Annual premiums for individual (personal) pensions are deductible up to a maximum of NOK 40,000.

Taxation of employer contributions

All schemes: Employer contributions are tax-deductible as a business expense, but employers pay social security contributions on their occupational scheme contributions at a maximum rate of 14.1 per cent.

Employer contributions are not taxable as fringe benefits for employees.

Defined benefit schemes: Employers may over-fund benefits at a rate of 50 per cent of annual contributions each year, limited to a total over-funding of six times annual contributions.

Taxation of investment income

All schemes: Tax-exempt.

The employer gets deductions for payments and costs and pays social security contributions on their occupational scheme. Defined pension contributions are exempt from capital tax and tax on return during the savings period. The employee does not pay tax on the contributions, but pays income tax on the pension payments.

Taxation of benefits

All schemes: Taxed as both general and personal income.

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Financial Supervisory Authority of Norway: Supervises insurance companies, pension funds, banks and mutual funds and ensures that sponsoring employers comply with legal requirements.

Supervision of the pension scheme
The FSAN decides in cases of doubt whether or not an employer comes under the Mandatory Occupational Pensions Act.

The FSAN has the power to order any sponsor failing to maintain a pension scheme in conformity with the legal requirements to rectify the unlawful circumstance by a specific deadline and to impose a cumulative fine on the sponsor to that end.

Supervision of the pension provider
The instruments of supervision employed by the Financial Supervisory Authority of Norway (FSAN) include:

- off-site supervision;
- on-site inspections;
- enforcement of laws and regulations;
- framing and simplification of rules.

The FSAN may require supervised entities to provide access at all times to their records, accounting information, documents etc. and to disclose any information that the FSAN may request.

Supervision is based on a combination of analyzing accounts, reports and on-site supervision. Early warning parameters are:
- the extent of share investments and the lack of diversification in equity markets;
- risk capital exploitation ratio (available capital to absorb new decline in market value, given a specified stress-test scenario);
- sny high risk concentration in the management of capital; and
- insurance risk (especially when the actuary is not from one of the most professional and well-known consultant firms).

The FSAN is financed by levies on supervised entities.

Finanstilsynet
P.O. BOX 1187 Sentrum
NO-0107 Oslo
Norway
Tel.: (+47) 22 93 98 00
Fax: (+47) 22 63 02 26
Internet: http://www.finanstilsynet.no

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