Agreement on new pension arrangement for the public sector

The government and labour organisations have reached an agreement on a new pension arrangement for the public sector in Norway.

On Saturday March 3rd, LO, Unio, YS, Akademikerne, KS and Spekter reached an agreement with Norwegian Ministry of Labour and Social Affairs on a new pension arrangement for the public sector. The agreement must be confirmed by the members within the various unions before the law can be finalised. Photo: Jan Richard Kjelstrup/ASD.

- We are delighted that all parties were able to reach an agreement on a new public sector occupational pension, which was the missing part to complete the pension reform. The agreement describes a public sector occupational pension adapted to the requirements of the reform, said CEO Finn Melbø.

- This is vital for both our current members and coming generations. As pension providers, we must work towards implementing and managing a new set of rules so that those covered under the current rules and those covered by the new solution both receive their pensions, Melbø added.

Incentive to work

In December 2017, both the government and the unions concerned agreed to negotiate. All parties describe the discussions as constructive but tough. All parties are pleased with the final outcome. The agreement acknowledges the following:

  • Incentive to work longer
  • Those who are obliged to retire early will be covered
  • It will be easier to move between the public and private sectors
  • All public sector employees will receive a public occupational pension

Who will be covered by the new pension arrangement?

The new arrangement will apply for those born in 1963 and later. Accumulation of pension under the new scheme will begin from 2020. In 2025, the 1963 age group will reach 62 years of age and will have the possibility to retire and claim their pensions under the new public sector occupational pension scheme.

For those born in 1962 and earlier the current pension and AFP (lifelong contractual pension) schemes will apply. This will be achieved by introducing guidelines for merging with the new Social Security insurance and individual guarantees for the 1959-1962 cohorts. This group will have a share of the guarantee supplement that previously applied to those born up until 1958.

What was agreed?

The agreement covers age-related pension and AFP in the public sector. The rules will be the same for both women and men and will ensure a lifelong pension. The pension will be different to the current pension scheme and will more closely resemble the Social Security insurance and private pension schemes.

For example, instead of the current situation, where your pension is calculated from your final salary, you will accumulate pension as part of your salary in the same way as Social Security insurance.

Age-related pension - an independent supplement to the Social Security insurance pension

It was agreed that age-related pension should be a premium scheme, where

  • all working years up to the age of 75 is included in your pension calculation, instead of the current situation where full pension is achieved after 30 years.
  • the pension will be calculated independently from the Social Security contribution, instead of it being merged with Social Security contributions as is currently the case.
  • you will be eligible for pension at any time between the ages of 62 and 75 and can also combine your pension with income without your pension being reduced. Currently, the earliest you can receive your public sector occupational pension is from the age of 67 and your pension will also be affected by any income.

AFP – similar to the private sector

The AFP scheme in the public sector is currently an early retirement scheme paid out between the ages of 62 and 67. The parties agreed that those born in 1963 or later should be eligible for an AFP scheme similar to that available in the private sector. AFP will be a lifelong premium scheme that is available flexibly between the ages of 62 and 70 and can be combined with income.

For those that do not qualify for the new AFP, there will be a new product - conditional pension. This will provide additional pension security for this group. The conditional pension will be available flexibly between the ages of 62 and 70 and applies to those born in 1963 and after.

Special age limits

The parties also agreed that the special age-related pension shall be adapted to the pension reform and the new premium model but that those with special age limits shall have ensured predictability. The parties therefore agreed to examine and formulate an arrangement for special age limits as the next step.

Phasing in over time

Even though we have a new pension arrangement for the public sector, the current rules and transition rules will remain in place for many decades for certain age-groups. Many people will end up with one foot in the current pension scheme and the other foot in the new scheme.

- A reform such as this can't just happen overnight. The public sector pension has remained more or less unchanged since the State Pension was established in 1917. Pensions are all about the long view, and society and the labour market have changed over time. Also, we live longer, so pensions must reflect that, and young people are going to have to work longer to attain the same pension levels as older age groups, says Finn Melbø.