Today, the Ministry of Finance proposes a new law concerning mandatory occupational pension. - The proposal is an important element towards safe pensions for all, and will ensure old age pension rights in addition to pension rights from the national social security system for most employees, says Minister of Finance Per-Kristian Foss.

Based on the white paper regarding the future pension system in Norway ( St. meld. nr 12 (2004-2005) Pensjonsreform - trygghet for pensjonene), the Storting decided 26 May 2005 that legislation regarding mandatory occupational pension should enter into force from 1 January 2006. The Banking Law Commission (“BLC”) was given the task to prepare a report and to draft new legislation on mandatory occupational pension. The report from the BLC was sent out for public consultation 1 July 2005, with a deadline for comments 8 August 2005. The hearing showed wide support for the main elements in the BLC’s draft. The proposal from the Ministry of Finance, outlined below, does to a large extent follow the BLC’s draft.

The Ministry of Finance proposes that the duty to have an occupational pension scheme shall apply to companies, both taxable and tax-free, with man-labour years above a certain minimum level. The duty applies to companies that have:

• at least two persons who both have working hours and wages that represent 75 per cent or more of a full time position,
• at least one employee, without ownership interest, who has working hours and wages that represent 75 per cent or more of a full time position, or
• persons, 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 two man-labour years.

The proposed act will not apply to companies that have a pension scheme according to law or wage agreement for public employees.

The mandatory occupational pension scheme may be established as either a defined contribution scheme or a defined benefit scheme. If the company establishes a defined contribution scheme, the minimum requirement is to contribute 2 per cent of wages between 1 G and 12 G (G is currently 60,699 NOK). The minimum requirement for defined benefit schemes is that the level of annual pension benefits must be at least on the same level as expected benefits from a defined contribution scheme on the minimum level. The minimum requirements apply to the employers’ contributions. In addition it may be agreed that the employees shall contribute to the pension scheme.

The costs for the administration of the pension scheme shall be covered by the company in addition to the minimum required levels for contributions or premiums. Furthermore, it is proposed that mandatory occupational pension schemes must include a premium waiver (insurance) which will provide saving for old age pensions in the case of disability. The costs related to this element must be covered by the employer in addition to the minimum requirements.

It is proposed that the companies will have to establish schemes meeting the minimum requirements by the end of 2006, and that the schemes must have economic effect for the employees from 1 July 2006 or earlier. A general 6 month deadline is proposed for companies which become obliged to establish a scheme. Companies for which the obligation arises in 2006 must, at the earliest, establish a scheme before the end of 2006.

The BLC has, with some uncertainty, estimated that the proposal will concern approx. 600 000 employees in 130 000 companies currently without pension schemes. The total yearly amount of contributions and costs at the minimum level for these companies is estimated to be approximately 3.3 billion NOK, assuming 600 000 employees with average wages of 4.5 G. The proposal from the BLC covered taxable companies. The number of tax-free companies that will have to establish pension schemes, the number of employees in such companies, and the effects for these companies has not been evaluated.

The proposed act will also require that existing pension schemes meet the proposed minimum requirements. According to the information available to the ministry, the proposal will have limited consequences for existing schemes.

With respect to self-employed persons it is proposed to establish a possibility, but not an obligation, to establish defined contribution schemes within the proposed minimum requirements. The ministry will later propose tax rules for this group of self-employed persons.

Ot.prp. nr. 10 (2005-2006) (Norwegian version only)

The Banking Law Commission's Report No. 13, NOU 2005: 15, summary in English