NEWS ANALYSIS: The Norwegian government’s pension reforms caused confusion and some controversy when they were first introduced more than a decade ago. Only now, it seems, are Norwegians starting to realize how the reforms will affect and mostly cut their future pension payments, and the protests are rolling in.
Not only do the vast majority of private-sector employees face significant reductions in what has been the pension standard in Norway (around two-thirds of an employee’s salary at time of retirement): Public sector workers are getting hit, too. Their future income guarantees aren’t necessarily firm either, and on Monday, newspaper Dagens Næringsliv (DN) reported that financial authorities want to further shift the costs and risks of pension programs over to the employees themselves. They now want allowance for higher premiums for female employees because, they contend, women still live longer than men and thus are more expensive to insure.
‘Start saving’
Norwegian media outlets have been full of pension reports in recent months, especially in the past week since a state commission unveiled more proposed changes that can drastically affect pension payments in the future. The pension issue is notoriously complicated, though, and doesn’t usually attract widespread interest, but now Norwegians are being warned to wake up: Young workers especially are the ones potentially getting hit hardest by reforms that are still in the process of being phased in.
Experts have one strong but simple piece of advice: “Start saving for your own pensions now,” because Norwegians can no longer expect to receive the standard, relatively comfortable pension payments that their parents or grandparents do today. In some cases, employees may wind up with only 30-40 percent of their salaries when they retire, and they better be prepared either to live on that or have other means of supplementing their pension income.
That’s because politicians from all the main parties, not least the otherwise worker-friendly Labour Party, have pushed through reforms to lower the future and ever-increasing burden of costs on the state pension funds. Pension expenses have been increasing faster than premium payments coming into the funds, with fewer active workers financing larger ranks of retirees. Even Norway, a country often touted as “the world’s richest” and known for its huge oil-fueled sovereign wealth fund aimed at funding pensions for future generations, has been cutting back on prospective pension benefits.
Phasing out ‘secure’ programs
Private sector employers don’t think the public sector pension cuts are enough, and already have been forcing major changes in their pension systems on their employees for years, to cut costs and make them less unpredictable. It’s about to get worse, after the state commission on bank and finance laws (Banklovkommisjonen) proposed that all private employers should get three years to phase out the most secure pension programs from an employee’s point of view called ytelsespensjoner. They guarantee an employee around 66 percent of their salaries for life, as opposed to the newer innskuddspensjoner, where employers only set aside a small portion of an employee’s salary (often 5 percent or less) in a retirement fund that the employee is ultimately responsible for managing. The amount available in an innskudd-program for payouts at Norway’s standard retirement age of 67 likley won’t be as high as those in an ytelse-program, and most innskudd-programs only pay out over a 10-year period. At age 77, Norwegians likely won’t get more than the minimum state pension.
Pensions in Norway are a combination of both state- and employer-funding, with the employer (tjeneste) portion boosting the state’s contribution up to the traditional 66 percent. Not all private sector employers offered pension programs, though, and government reforms several years ago demanded that they do so, to augment the state pension. The state wanted more employer and employee participation but also ironically eliminated some popular pension savings programs for individuals that offered tax breaks. That left Norwegians with mixed signals and a bum deal: Potentially poorer pension plans and removal of an incentive to save on their own. One labour organization, YS, wants pension amounts to be included on monthly pay slips for all employees, so they can more closely follow how much they stand to get in future pension income.
Calls for more clarification
While the state commission continues to work on a so-called “hybrid” pension model that would combine elements of the two main pension plans available today, labour unions are concerned about the pension losses looming for their members. Norway’s major labour federation LO proposed last week that pension programs be made a specific part of collective bargaining contracts (tariffavtaler) in the private sector. DN wrote that LO wants all its members to get a pension equal to 66 percent of their incomes, and that private- and public-sector pension plans be “harmonized.” Norwegian Broadcasting (NRK) reported over the weekend, though, that many public sector workers no longer have a 66-percent guarantee either.
Calls are going out for Prime Minister Jens Stoltenberg of the Labour Party and his colleagues to better clarify exactly what they’re doing with pension reforms and how they will affect workers, both public and private. At present, even the experts say that uncertainty prevails for most workers and that it’s difficult if not impossible to know how much they’ll receive in pension income. That just reinforces the advice of many: Norwegians now need to plan much more for their own retirement, instead of relying on the state or their employers to do so.
Views and News from Norway/Nina Berglund
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