The Norwegian Pension Reform: An External Perspective

fredag, 13 oktober 2017

Like many other developed countries, Norway is facing a rapid ageing of its population that is attributed to both falling mortality and fertility rates in the past and projected life-expectancy increases over the next several decades. According to United Nations (2015), it is projected for Norway that by 2060, the share of the population 65+ will increase to over 25% (from 16% in 2015) and the potential support ratio will drop to 2 people in the labour force for each person aged 65 years and over.

The major findings of this report are as follows.

  • Norway’s structural reform to the public old-age pension combined with the policy changes to second-pillar pension schemes in the private sector is expected to have a significantly positive impact on long-run fiscal sustainability – driven to a large extent by strong labour supply effects along both the intensive margin (higher working hours) and the extensive margin (postponed retirement).
  • The new pension system will continue to deliver adequate and equitable pensions as a result of (i) maintaining (and in some cases strengthening) the redistributive measures of the public old-age pension and (ii) growing significance of occupational pensions for young and future generations.
  • Key areas for further improvement of Norway’s pension system include: (i) reducing complexity by reforming particularly second-pillar pensions in the public sector; (ii) applying an automatic adjustment mechanism to account for future macroeconomic and demographic risks; (iii) increasing coverage of the longevity risk by recalculating annuity factors at the age of 67 for those claiming a public old-age pension before that age; (iv) considering progressive taxation or means testing of public pension benefits to mitigate negative distributional effects of life-expectancy differentials by socioeconomic characteristics.