LO wants occupational pensions on bargaining agenda

Prior to its national congress in May 2001, the Norwegian Confederation of Trade Unions has signalled a wish to give priority to occupational pensions in future wage settlements in the private sector. The organisation also wants to see a strengthening of the national insurance pensions scheme, through measures including the earmarking of the national oil fund for future pension obligations.

An internal committee established by the Norwegian Confederation of Trade Unions (Landsorganisasjonen i Norge, LO) to consider and make recommendations for LO's future pensions policy published its report in January 2001. The committee has considered present arrangements such as the national insurance pensions scheme and the agreement-based AFP early retirement scheme, as well occupational pensions. The report, along with other contributions to the pensions debate in recent months, indicate that the pensions issue will be high on LO's agenda in the coming years, as well as at LO's national congress that will take place in May 2001.

Background

The national insurance scheme (Folketrygden) has long been the backbone of the Norwegian pension benefits system. It is a two-tier system with a universal flat-rate pension applicable to all, which is combined with an additional earnings-related supplementary pension. In addition, a substantial number of employees are also covered by occupational pensions schemes at the workplace. Employees in the public sector are subject to comprehensive occupational schemes covering all employees, and the proportion of employees covered by occupational pension schemes in the private sector is relatively high in the larger companies, as well as in branches such as banking and insurance. However, estimates suggest that as many as two-thirds of employees in the private sector are not covered by occupational pension schemes. The standard retirement age in Norway is 67 years. However, many employees enjoy the right to early retirement through the AFP, which allows employees to retire from the age of 62.

LO's pensions policy

The pensions committee recommends that LO's pensions policy should include the following objectives in the years to come.

To maintain a reasonable pension

There are general concerns in Norway about the ability to provide adequate pensions to the population at large through the national insurance scheme. Many point to emerging demographic trends, whereby a declining number of people in employment will have to support an increasing number of pensioners. Up until now, the national insurance scheme has been based on a "pay-as-you-go" principle, whereby current pensions are financed by those currently in employment and there is no fund set aside for future pension obligations. LO and its pensions committee share this concern about the future financing of the national insurance scheme. Furthermore, they are also concerned about the fact that the annual indexation of pensions rights through the national insurance scheme has not kept up with the wage growth rate in society at large. As a consequence, the level of pension compensation for employees has been significantly lower than was originally intended.

LO wants to preserve the national insurance scheme by means of earmarking the national "oil fund" for future pension payments. It further stipulates that it want to see the introduction of a fixed method for regulating future pensions in order to avoid future losses in their value. This will ensure that more employees receive supplementary pensions based on their employment record than would otherwise be the case.

To allow higher occupational pension coverage and employee influence

Today, all public sector employees are covered by supplementary pensions through their employment contracts. The equivalent figure in the private sector is much lower. LO estimates that almost 30% of its members are without any form of occupational pension scheme (approximately 60% of its members in the private sector). The committee confirms the importance of including more groups in such schemes. It therefore recommends that LO and its member unions present demands for occupational pension schemes in future wage settlements.

The committee also wants to see increased employee influence on existing pension schemes, including in the state and municipal sectors. Thus, it recommends that existing pension arrangements should be incorporated into collective agreements.

A final goal for LO is to safeguard the influence of employees and their organisations on the financial capital in pension funds. The committee suggests that funds should be administered in such as way as to combine the goal of responsible returns with the objectives of environmental and social responsibility.

The maintenance of the AFP

The present AFP arrangement for early retirement was introduced in the 1988 wage settlement, as part of an incomes policy compromise. At present, it covers a substantial number of employees aged between 62 and 67. The AFP, however, has been criticised for being too costly and for contributing to employees leaving working life too early. There is currently an understanding between the state and the social partners that the state will contribute to the scheme until 2007.

LO sees the AFP as a necessary tool in order to safeguard a decent departure from working life for employees with a long career record and for groups who would otherwise be forced into drawing disability benefits or unemployment. The committee wants the AFP to be further considered in the period up until 2007, and stresses the importance of creating a model that allows early retirement for those who need or want it, while at the same time preventing a further drop in the average retirement age.

Commentary

The report of the committee deliberating LO's future pension policy, as well as other contributions to the pension debate in recent months, indicate that LO believes that the issue of pensions will be on the agenda in the years to come. This is not surprising given the fact that the burden of pension commitments is increasing, creating concerns about future pension arrangements in Norway, as is the case in many other countries. There is a fear that the national insurance scheme will develop into a scheme that provides only for a minimum pension for all. This, combined with low occupational pension coverage in the private sector, places a significant number of LO's members in a vulnerable position.

In the autumn of 2000, LO signalled that occupational pensions will be an important demand in future wage settlements. Its largest union in the private sector, the Norwegian United Federation of Trade Unions (Fellesforbundet), will raise a proposal calling for occupational pension for employees in the private sector at the LO congress in May 2001. Fellesforbundet wants such a right to be incorporated into collective agreements, but does not elaborate on how this will be achieved. This corresponds with the recommendations of the LO pensions committee. LO's present leader, Yngve Hågensen, has also made the prediction that "the next big demand from a united trade union movement will be a pension reform". It is also stressed that so-called "defined-contribution" pension plans, promoted by a recent change in the legal framework which was supported by LO (NO0101119F), will make it easier to establish occupational pensions schemes in companies and branches presently enjoying low pension schemes coverage. LO's dilemma is that it is doubtful that a proposal to include a right to occupational pension coverage will be accepted in central negotiations over new pay settlements, while at the same time experience shows that it is especially hard to obtain acceptance for such demands at company level in small firms and in those branches where the pension coverage is traditionally low.

Since life expectancy is much higher among women than men, women's pension costs are significantly higher than those of men, assuming they receive the same amount of pension throughout the retirement period. In the case of defined-contribution plans, however, the employer may choose to contribute the same amount for both men and women. The implication is that women will receive a much smaller amount of money than men, since the funds set aside will have to cover a longer pension period. As such, LO wants to direct efforts towards establishing arrangements that allows equality between the sexes with regard to both entitlements and contributions, in order do prevent discrimination. The issue of whether occupational pension schemes may lead to discrimination in recruitment has also been raised. A significant number of employees believe that variations in pension entitlements will affect employers' choices in taking on new staff, which means that women and older employees may be discriminated against (according to a survey referred to in Næringslivets Ukeavis). However, present occupational pension schemes operate with diversified entitlements, and there are no indications to suggest that it leads to a situation in which women are discriminated against in recruitment.

The committee's report also makes evident the trade-offs LO is facing with regards to non-pay terms and conditions of employment. LO is a great supporter of robust public welfare arrangements, including a strong national insurance scheme. Improvements in areas such as pensions, working time and holidays have traditionally been accomplished through the legal framework and universal arrangements, and not through collective agreements (whereby the improvements would be confined to employees in organised companies). Developments in relation to the national insurance scheme have, however, made it difficult to rely on a universal public pension scheme safeguarding those members not covered by occupational pension schemes. There have also been trends towards the establishment of improved terms and conditions through collective agreements, eg the introduction of an extended annual leave entitlement in the 2000 wage settlement (NO0005192F). The new report shows, however, that LO still wants the national insurance scheme to play an important role with regard to supplementary pensions. (Kristine Nergaard, FAFO Institute for Applied Social Science)