"The big question is what happens to the already accumulated existing benefit plans?"
Knut Erlend vik, PA insurance expert
Knut Erlend Vik is quoted in The Finance Newspaper on the consequences of the new pension rules. The Norwegian Banking Law Commission presented to the Finance Minister its proposal for a new pension scheme.The proposed new rules state a more even distribution of risk between public pensions and private pensions. This means that the risk is shifted more towards the employees.
There are two options for the employee. The employee may either manage all the risk through its own investments of its pension, or share risk with its employer through annual alignments according to salary increase, or based on an interest rate guarantee.
The big question is what happens to the already accumulated existing benefit plans? The companies will go bankrupt if existing agreements are converted into paid-up policies. Paid-up policies hold up a huge amount of the companies’ capital.
Knut also points out that there will also be a huge challenge if the paid-up policy is established with a choice of investment.
In such a situation, the insurance companies will have to contact everyone individually, and the majority don't even know if they have a paid-up policy. Also, remember that it might not be right for everyone to have a choice of investments. The media has already covered this.
The proposal is a step in the right direction for the insurance companies. It gives the employer the possibility of offering very attractive pension plans to its employees.
Knut Erlend Vik is an insurance expert at PA Consulting Group.