Schneider S. M., Petrova T., Becker U. (eds.), Pension Maps: Visualising the Institutional Structure of Old Age Security in Europe and Beyond, 2nd ed., Munich: MPISOC, 2021.
The Norwegian Old Age Security System in 2020
By Anika Seemann, Max Planck Institute for Social Law and Social Policy
Norway’s first nationwide public old age pension system was introduced in 1937. The public old age pension is now part of Norway’s national insurance system (folketrygden), which is a mandatory, universal social security system formed in 1967. Concerns about fiscal sustainability due in particular to demographic change were the main reason behind a major reform of Norway’s old age pension system, which was phased in beginning in 2011. In addition to the statutory earnings-related ‘income pension’, the national insurance system offers a ‘guarantee pension’ that is meant to provide a ‘minimum’ pension for individuals with an insufficient ‘income pension’. With the ‘guarantee pension’, the avoidance of old age poverty forms an integral part of the statutory old age pension system, although additional social assistance is available for individuals with limited periods of residence in Norway who cannot obtain a full ‘guarantee pension’. In addition to the universal old age pension system, Norway has both occupational pensions and private pensions. A ‘standard’ level of protection is intended to be ensured through supplementary benefits provided by mandatory insurance in occupational pension schemes for those in private and public employment and through personal pension schemes for those in self-employment. For individuals wishing to ‘top up’ their pensions, tax benefits are available for voluntary private pension savings.
Standard Protection in Old Age
All residents (and some individuals outside Norway) are members of the statutory old age pension scheme as part of Norway’s national insurance system (folketrygden). To qualify for an old age pension, individuals need to have resided in Norway for at least three years between the ages of 16 and 66. The old age pension of the national insurance system consists of an earnings-related ‘income pension’ (inntekspensjon) and a pension-tested ‘guarantee pension’ (garantipensjon) ensuring a minimum amount of pension benefits. The system is financed as a pay-as-you-go (PAYG) system based on social contributions and state subsidies. The ‘income pension’ is calculated based on lifetime income between the ages of 13 and 75. Flexible retirement is possible between the ages of 62 and 75.
Occupational pension schemes are mandatory both in the public and in the private sector. For private sector occupational pension schemes (obligatorisk tjenestepensjon, OTP), it is a legal requirement that employers make a minimum contribution of 2% of employee earnings to a defined contribution pension plan. Defined benefit schemes are still an option, but they must be of the same scope as a 2% defined contribution (DC) plan. Public sector occupational pension schemes (offentlig tjenestepensjon) are administered by different bodies, depending on whether an individual works for the state or a municipality. For state employees, occupational pensions are administered by the Norwegian Public Service Pension Fund (Statens Pensjonskasse), which operates as a pay-as-you-go (PAYG) system. At the municipal level, occupational schemes are largely funded schemes governed by collective agreements and administered through Kommunal Landspensjonskasse. Apart from their financing, however, public sector occupational pensions largely follow the same principles, with new uniform rules for public sector occupational pensions having come into effect on 1 January 2020 for cohorts born in or after 1963. The main aim of the recent reform was to bring public sector occupational pension schemes in line with the principles of the reformed statutory old age pension scheme.
Currently, a special type of collectively agreed early retirement scheme, also referred to as contractual retirement pension (avtalefestet pensjon, AFP), covers around 50% of employees in the private sector and 100% of employees in the public sector. These schemes were introduced in 1988 through tripartite agreements and are currently undergoing reform. The AFP pension is not an insurance scheme, so there is no membership; rather, individuals whose employer takes part in the scheme can qualify for the pension when they have spent sufficient time working for an employer who has entered into an AFP agreement. The cost of the scheme is shared between employers and the state. Before 2011, AFP schemes were exclusively devised as fixed-term early retirement schemes that could only be drawn between the ages of 62 and 67. This provided strong disincentives to continue to work until the age of 67 and thus contravened the aims of the pension reform of 2011. In 2011, the AFP pension was reformed for private sector employees, based on a new collective agreement from 2008. Following the agreement, the AFP pension was converted into a lifelong contractual retirement pension scheme for private sector employees. On 8 March 2018, a corresponding collective agreement was concluded for AFP pension schemes in the public sector (for public sector employees born in or after 1963). This new public sector contractual retirement pension scheme is intended to be based on the same principles as the AFP scheme in the private sector.1
For the self-employed, pension savings in addition to the old age pension from the national insurance system (folketrygden) are encouraged, but remain voluntary. Self-employed individuals can create their own voluntary DC pension scheme (frivillig innskuddspensjon), or they can join the occupational pension scheme that they create for their employees. In addition, they can use the individual pension savings scheme (outlined below) to save for old age.
Individuals may save for a voluntary private pension to top up the public pension and the work-related pension schemes. In 2017, a special tax-deductible individual pension savings scheme (individuell pensjonsordning, IPS) was introduced. It serves either as a ‘top-up’ to public and occupational pension benefits for persons who are covered by other forms of ‘standard protection’ in old age, or as an additional pension to the public pension for the self-employed.
The ‘guarantee pension’ of the national insurance system is intended for those individuals who have an insufficient ‘income pension’. The ‘guarantee pension’ is tested against 80% of an individual’s ‘income pension’, meaning that work will always prove beneficial within the system and that individuals can receive both a ‘guarantee’ and an ‘income pension’. To qualify for a full ‘guarantee pension’, an individual has to have been a member of the national insurance system for 40 years. For individuals with shorter membership periods, the ‘guarantee pension’ is reduced accordingly. For those individuals whose pension falls below the minimum pension level provided through the ‘guarantee pension’ because they have not been members of the national insurance system (folketrygden) for 40 years, a special social assistance scheme, which is not part of the national insurance system, grants a supplementary benefit (supplerende stønad), so that individuals can secure the equivalent level of pension benefits to that provided by the ‘guarantee pension’, i.e. the minimum pension level. This scheme is strictly means-tested against the entirety of an individual’s and their spouse’s assets, rather than just their ‘income pension’ (as is the case for the ‘guarantee pension’).
1 For the time being, the AFP pension for public sector employees remains an early retirement scheme that cannot be utilised at the same time as the statutory old age pension. Since 1 January 2020, however, cohorts born in or after 1963 have started qualifying for the new life-long AFP scheme.