If you read nothing else, read this …
•Defined benefit (DB) plans remain most common pension type and equate to 60%-70% of final salary, including social security benefits.
•The Norwegian government has driven pensions reform. New topics up for debate include whether occupational pension schemes should become mandatory.
•Employers can choose between defined contribution (DC) schemes with or without investment choices. Likewise, there can also be choices available on a scheme’s annuities.
•From 2001, DC and DB plans have equal tax benefits. The new law means DC contributions paid for by the employer are tax deductible and subject to easier accounting rules.
Article in full
For the fourth year in a row, Norway has topped a United Nations poll as the best place to live in the world. With a life expectancy of 79 years, its relatively small population enjoys a high standard of living. Britain lagged behind at number 12 in the poll.
One feature we have in common with Norwegians though is a growing trend to switch from defined benefits (DB) to defined contribution (DC). A change of legislation in 2001 meant it became more fiscally advantageous to offer employees a DC scheme. But staff often need guidance, not least because they may need to make investment choices.
Jimmy Johansen, senior consultant for Mercer HR Consulting in Oslo, says cost savings for employers are one reason for DC schemes’ appeal, but as in the UK, the portability of DC plans also attracts younger employees. “Like most consultants we’re really busy right now – companies may be looking at switching to or running a DC plan in parallel and issues such as winding-up costs are crucial. Awareness of pensions in Norway among employees tends to be low and they need communication programmes.”
Ola Hestnes, a Scandinavia-based consultant for Watson Wyatt, says some 900,000 employees in private companies have no plan and rely on the Norwegian state pension, which is equivalent to only 30%-55% of salary. “The new pensions legislation was to make it easier for companies to offer a pension plan to their employees and the number of DC plans in Norway is growing. More than 50% of new plans issued in 2003 were DC, although companies going for these tend to be small and medium-sized enterprises.”
Larger firms still have DB plans in place, although there is a trend towards setting up a DC scheme for new staff.
Hestnes adds that Norwegian state pension reform is expected in the next five years. This is driven by the costs of the ageing population and should lead to a reduction in state pension benefits. The government is also expecting to see its income from the petroleum industry decrease.
Pensions are the big issue right now in Norway, but they are not the only benefit to float Norwegian employees’ boats.
Espen Rye Ellingsen, senior consultant with Aon in Oslo, says young workers tend to be more excited by a free mobile phone than a pension. Beyond this, larger firms tend to provide life cover, income protection and accident insurance, free newspapers and in some cases, house cleaning services.
Private medical insurance (PMI) is less common, although take-up is increasing. “We have it at Aon and there have been claims for a variety of conditions from cancer to sports injuries – cover is appreciated. Norway has a strong social democratic history, but there has been a slight change in attitude and we’re also seeing a slight rise in parents sending children to private schools,” says Ellingsen.
Johansen adds: “There is a growing number of PMI plans available and, since they tend to be about covering operations where there are waiting lists, cost is often affordable.”
Other popular benefits include gym membership and subsidised lunches. One has a traditional Norwegian feel: “Larger companies tend to own log cabins in the mountains and allow their staff to use these for rest and relaxation.”