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Norway’s new tjenestepensjon legislation and low interest rates have prompted several local pension funds to change their schemes from defined benefit to defined contribution.
The new legislation, which became effective on 1 January 2006, requires all Norwegian companies which do not currently have an occupational pension scheme to establish one before 1 July 2007.
Morten Harbitz, actuary and partner at Gabler & Partners, told nrpn that many Norwegian pension funds are currently considering a shift from defined benefit to defined contribution because of low interest rates.
“A few Norwegian funds have already switched their schemes from DB to DC in order to cover their pension costs more efficiently. I believe the trend will continue unless interest rates change,” he said.
On the other hand, some Norwegian companies have opted to close their DB plan and offer a DC scheme to all of their new employees and offer the DC option to its existing employees.
Several companies have also decided to move all employees under 52 years to a DC scheme and maintain DB schemes for their older employees.
Companies that have made the shift include the Norwegian post, which moved its DB plan from the State Pension Fund to a DC scheme managed by the Norwegian pension insurance giant (E25.4bn) Vital. Also Telenor’s E627m (Nkr5bn) pension fund is shifting its scheme from defined benefit to defined contribution.
Mr Harbitz underlines that employee unions have criticised the trend. “Some companies are in fact working hard to deal with the opposition of worker unions,“ he says.
Espen Rye Ellingsen, director of pensions at Aon Grieg in Oslo, however, points out that a DC scheme has several benefits especially for the employees of low-wage sectors.
“The benefit of a DC scheme is that it enables pension money to be invested the way it should be, with no limits on share interest as there is in DB schemes, which stipulate a maximum 35 per cent exposure to equities. DC schemes also offer lower cost profiles,” he says.
“Furthermore, if we evaluate the 30-year development of DB and DC schemes, then a DC plan would have given a very good plan in terms of the development of economy and salaries,“ adds Mr Ellingsen.
RC
