Pensions in Norway fall into three major divisions; State Pensions, Occupational Pensions and Individual or personal Pensions.
All Norwegians citizens are entitled to get a state pension from the age of 67 in accordance with the Norwegian National Insurance Act (Folketrygdloven). The state pension is paid in full to Norwegian citizens who have lived in Norway for at least 40 years after the age of 16 and in lesser amounts to Norwegian citizens who have lived less time in the country (see Minimal state pension (Minstepensjon)).
The State Pension is calculated according to what the individual has previously earned from ages 16 to 67. The calculation is made by The Norwegian Labour and Welfare Administration (NAV).
The financing of the state pensions is based on a "Pay as you go" system. This means that today's work force is making the payments for the current retirees. The demographic structure in Norway suggests that in the future there will gradually be significantly fewer persons working in proportion to each retired pensioner.
The state pension is divided into three different parts, Public pension base rate (which everyone gets), Special supplement and Dependents supplement. Altogether this makes up the state pension scheme.
The Minimal state pension is a pension scheme which is paid to retirees who have not earned a special supplement (Særtillegg) or who have earned an Occupational pensions which is lower than the State Pension special supplement.
The minimal state pension provision is intended to prevent poverty in old age. All Norwegian citizens over the age of 67 are entitled to claim state pension, including Norwegian citizens who have never accrued pension, or those who have accrued a low pension.
Living costs in Norway are very high and have been increasing tremendously over the past few decades. Therefore, the Norwegian minimal state pension, which has been designed to cover the most basic living expenses in Norway, is adjusted each year to the increasing living costs in Norway.
Norwegian pensioners who have lived most of their lives in Norway and who are entitled the Norwegian minimal state pension are permitted to use this pension money in other countries too – due to this, many Norwegian retirees choose eventually to move abroad after they retire to countries where the Norwegian minimal state pension would provide them a much higher standard of living. On the other hand, Norwegian pensioners who did not live in Norway most of their lives and who are entitled the Norwegian minimal state pension, will receive the Norwegian minimal state pension only if they would stay in Norway for at least nine months each year from the age of 67.
For example, as of 2013 basic factor for single person, calculated is 14208 kr per month (half of that is Basic pension-Grunnpensjon and rest Special supplement-Særtillegg) which is about US$2,326, 1,429 GBP or 1,689 EUR per month. [1] [2] To compare - a Spain which is because of the climate, proximity, union part often chosen by pensioners, have average Spanish worker earns of €1,615 per month, and minimal wage of €752.9. [3] [4] [5] [6] [7] [8]
Occupational pension schemes are arrangements established by employers to provide pension and related benefits for their employees.
From 2006, all employers in Norway are required to provide an occupational pension (see mandatory occupational pensions section below) for their employees.
The mandatory occupational pensions (called "Obligatorisk tjenestepensjon" or OTP in Norwegian) were initially introduced in 2007 to cover employees who were not already covered by pension schemes. Many Norwegian workers have no other plan in store than the state pension scheme of the National Insurance. In order to change this, the OTP pension scheme was introduced. It is up to the individual companies to decide if they would rather choose a contribution scheme or a scheme based on the putting part of the employee's salary aside for them to have at retirement. The premium and the pension costs for the OTP pension scheme are paid in full by the employer. The minimum contribution is 2% of the salary funds. The employee can contribute, but this is voluntary. The pension scheme must be the same for everyone in the company who has an income of above 1G. It is not legally required for employees with an income of over 12G.
Contractual pension (called "Avtalefestet pensjon" or "AFP") is an early retirement pension scheme given to employees of companies which participate in the AFP pension scheme through a collective agreement (overenskomst).
The scheme was initially introduced in 1988 when the Norwegian Confederation of Trade Unions (LO) and the Confederation of Norwegian Enterprise (NHO) reached an agreement according to which the employees would be able to get their pension from the age of 66 years. According to the initial arrangement, the employees which took part in this pension scheme were entitled to receive an early retirement at the age of 66 if they wanted it. Later, the LO and the NHO negotiated on a lower retirement age. This pension scheme retirement age is currently 62. Eighty percent of today's 62-year-olds in Norway are entitled to get this pension scheme. Initially this pension scheme was only meant for those who were working in the hard industrial jobs, but eventually more groups became involved as other trade unions and employers' organizations also joined this pension scheme. The state has gradually joined this scheme.
This pension scheme is received in addition to the state pension scheme.
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It is also possible for an individual to make contributions under an arrangement they themselves make with a provider (such as an insurance company). Contributions are typically invested during an individual's working life, and then used to purchase a pension at or following retirement.
The seamen pension arrangement (called “Pensjonstrygden for sjømenn” in Norwegian) was established as a mandatory pension scheme by law on 3 December 1948, and its primary aim was to provide the pension for retired seamen, or their widows. Today it mainly covers retired seamen pensions between the ages 60 and 67. It is financed by fees taken from seafarers and shipping companies and by grants given by the state.
This pension arrangement covers:
Seafarer in this context includes some personnel in offshore- related industries, some rescue personnel at sea, and some groups of personnel on cruise- ships.
Public sector employees are covered by the Norwegian Public Service Pension Fund (called "Statens pensjonskasse" in Norwegian) .
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The Norwegian pension reform was initially announced in 2001 when the government appointed a special pensions commission. The commission which was led by Sigbjørn Johnsen consisted of both politicians and independent experts. The Parliament of Norway adopted the new regulations in the spring of 2009. The reform is scheduled for completion and would be fully implemented in 2025. The new regulations of the new "Flexible Retirement Act" (Ny fleksibel alderspensjon) have been implemented gradually since 2010. The reason for introducing new regulations in the retirement plans schemes was to be able to maintain a sustainable pension system which would be capable of handling an increase in the number of retired Norwegians/higher life expectancy, while at the same time fewer children are born. The pension reform is therefore intended to encourage more people to stay for a longer period in the workforce after retirement age.
As forecasted by the United Nations (UN), the Norwegian population over 65 years of age will reach a share of 25% of the country's population by 2060, contrasting a 16% figure in 2015. In adherence to this assumption and if there had not been an effective reform to the National Insurance Scheme in Norway, government expenditure for old age pensions would have amounted to 13% of GDP by 2060, which is more than double what was spent in 2013 (6% of GDP). [9]
Norway's pension reform has enjoyed widespread public support as its objective to improve the sustainability of the pensions system in the long-run has derived in strong labor supply incentives to get citizens to work more and for a longer period while keeping essential features of the re-distributive nature of the old scheme intact. The reform is to be implemented gradually, but some key features were already put into practice in 2011, including: life expectancy adjustment of pensions, flexible retirement from age 62 according to actuarial principles, and new rules for pension indexation.
The new system incorporates some of the old system's characteristics, such as:
While bringing in new attributes like:
While most countries reforming their national security systems rely on policy measures such as increasing the access-to-pension age, Norway has installed a scheme in which there is a reduction of the access age (from 67 to 62) accompanied by a flexible retirement from 62 to 75 and life expectancy adjustments, lowering pensions as life expectancy rises –this incentivizes people to work for more years to reduce the impact of growing life expectancy in a scheme that conversely relates it to pension benefits. Nevertheless, and while the reform has been widely praised, there are some shortcomings pointed out by experts: the reformed system is complex and has no automatic mechanisms to adjust to future macroeconomic or demographic pressures, and it establishes a uniform annuity-conversion-factors-assessment that does not take into account the possible negative effects on groups with shorter life expectancy.
A pension is a fund into which amounts are paid regularly during the individual's working career, and from which periodic payments are made to support the person's retirement from work. A pension may be:
In the United States, Social Security is the commonly used term for the federal Old-Age, Survivors, and Disability Insurance (OASDI) program and is administered by the Social Security Administration (SSA). The original Social Security Act was enacted in 1935, and the current version of the Act, as amended, encompasses several social welfare and social insurance programs.
The State Second Pension (S2P), or Additional State Pension, was introduced in the UK by the Labour Government on 6 April 2002, to replace the SERPS. The main aim of this change was to skew existing Additional Pension (AP) benefits in favour of low and moderate earners at the expense of higher earners and to extend access to include certain carers and people with long-term illness or disability for the first time.
A private pension is a plan into which individuals contribute from their earnings, which then will pay them a private pension after retirement. It is an alternative to the state pension. Usually, individuals invest funds into saving schemes or mutual funds, run by insurance companies. Often private pensions are also run by the employer and are called occupational pensions. The contributions into private pension schemes are usually tax-deductible. This is similar to the regular pension.
In France employees of some government-owned corporations enjoy a special retirement plan, collectively known as régimes spéciaux de retraite. These professions include employees of the SNCF, the RATP, the electrical and gas companies which used to be government-owned; as well as some employees whose functions are directly related to the State such as the military, French National Police, sailors, Civil law notaries' assistants, employees of the Opéra de Paris, etc. The main differences between the special retirement plan and the usual private sector retirement plans are the retirement age and the number of years a worker must contribute to the fund before being allowed a full pension. In the private sector the minimum retirement age is 62 and the minimum number of quarters of contribution to the retirement fund in order to receive a full pension is between 166 and 172 quarters depending on date of birth. Employees who are enrolled in the special retirement plan can retire earlier.
Social security is divided by the French government into five branches: illness; old age/retirement; family; work accident; and occupational disease. From an institutional point of view, French social security is made up of diverse organismes. The system is divided into three main Regimes: the General Regime, the Farm Regime, and the Self-employed Regime. In addition there are numerous special regimes dating from prior to the creation of the state system in the mid-to-late 1940s.
Defined benefit (DB) pension plan is a type of pension plan in which an employer/sponsor promises a specified pension payment, lump-sum, or combination thereof on retirement that depends on an employee's earnings history, tenure of service and age, rather than depending directly on individual investment returns. Traditionally, many governmental and public entities, as well as a large number of corporations, provide defined benefit plans, sometimes as a means of compensating workers in lieu of increased pay.
In France, pensions fall into five major divisions;
Pensions in Spain consist of a mandatory state pension scheme, and voluntary company and individual pension provision.
The Swiss pension system rests on three pillars:
Pensions in Ukraine provide income for retirees in Ukraine. They are provided pursuant to the Law of Ukraine on Compulsory State Pension Insurance that specifies a three-tiered pension provision system.
There are various types of Pensions in Armenia, including social pensions, mandatory funded pensions, or voluntary funded pensions. Currently, Amundi-ACBA and Ampega act as the mandatory pension fund managers within Armenia.
Pensions in Israel consist of a state old age pension system, a private pension system which employees are legally required to participate in and that is supervised and regulated by the government, and a pension system for civil servants.
Compared to other liberal democracies, Ireland's pension policies have average coverage, which includes 78 percent of the workforce, and it offers different types of pensions for employees to choose from. The Irish pension system is designed as a pay-as-you-go program and is based on both public and private pension programs.
Luxembourg has an extensive welfare system. It comprises a social security, health, and pension funds. The labour market is highly regulated, and Luxembourg is a corporatist welfare state. Enrollment is mandatory in one of the welfare schemes for any employed person. Luxembourg's social security system is the Centre Commun de la Securite Sociale (CCSS). Both employees and employers make contributions to the fund at a rate of 25% of total salary, which cannot eclipse more than five times the minimum wage. Social spending accounts for 21.8% of GDP.
South Korea's pension scheme was introduced relatively recently, compared to other democratic nations. Half of the country's population aged 65 and over lives in relative poverty, or nearly four times the 13% average for member countries of the Organisation for Economic Co-operation and Development (OECD). This makes old age poverty an urgent social problem. Public social spending by general government is half the OECD average, and is the lowest as a percentage of GDP among OECD member countries.
Pensions in Denmark consist of both private and public programs, all managed by the Agency for the Modernisation of Public Administration under the Ministry of Finance. Denmark created a multipillar system, consisting of an unfunded social pension scheme, occupational pensions, and voluntary personal pension plans. Denmark's system is a close resemblance to that encouraged by the World Bank in 1994, emphasizing the international importance of establishing multifaceted pension systems based on public old-age benefit plans to cover the basic needs of the elderly. The Danish system employed a flat-rate benefit funded by the government budget and available to all Danish residents. The employment-based contribution plans are negotiated between employers and employees at the individual firm or profession level, and cover individuals by labor market systems. These plans have emerged as a result of the centralized wage agreements and company policies guaranteeing minimum rates of interest. The last pillar of the Danish pension system is income derived from tax-subsidized personal pension plans, established with life insurance companies and banks. Personal pensions are inspired by tax considerations, desirable to people not covered by the occupational scheme.
The pensions system in Austria is composed of three parts: occupational pensions, private pensions, and state pensions. However, private and occupational pensions are secondary to the public pension issued through the state. According to the Organization for Economic Co-Operation and Development (OECD), Austria's pension system is categorized as targeted. This means that their system is set up to preferentially benefit poorer pensioners than those that are better off.
Public pensions in Greece are designed to provide incomes to Greek pensioners upon reaching retirement. For decades pensions in Greece were known to be among the most generous in the European Union, allowing many pensioners to retire earlier than pensioners in other European countries. This placed a heavy burden on Greece's public finances which made the Greek state increasingly vulnerable to external economic shocks, culminating in a recession due to the 2008 financial crisis and subsequent European debt crisis. This series of crises has forced the Greek government to implement economic reforms aimed at restructuring the pension system and eliminating inefficiencies within it. Measures in the Greek austerity packages imposed upon Greek citizens by the European Central Bank have achieved some success at reforming the pension system despite having stark ramifications for standards of living in Greece, which have seen a sharp decline since the beginning of the crisis.
An occupational pension fund, also referred to as an employer funded or employer administered scheme, is a pension offered by an employer to an employee's retirement scheme. Within the European Union (EU), these pension funds can vary throughout certain Member States due to differences in retirement ages in Europe, salaries and length of careers, labour and tax laws, and phases of reform.
