New early retirement scheme for private sector in pipeline

A new early retirement scheme in the private sector in Norway is to be proposed by the end of the year. The proposal will be made by a tripartite commission that was set up in June 2007, and the scheme will be incorporated into the wage settlements for 2008. The need for a new early retirement scheme within the private sector was announced as part of the government’s white paper on a new pension system, which was presented last year.

A tripartite commission set up by the Norwegian government in June 2007 is expected to propose a new early retirement pension scheme for the private sector by the end of the year. The existing early retirement scheme (Avtalefestet Pensjon, AFP) is based on a tripartite agreement and is only applicable to employees covered by a collective agreement. In accordance with this scheme, employees may retire at the age of 62 years. The pension paid until the standard retirement age of 67 years is partly funded by the state and partly by the social partners.

Background

The current early retirement pension scheme is founded on collective agreements and was first introduced as part of the 1988 incomes policy agreement. Since then, it has been revised on several occasions. In recent times, the scheme has been at the centre of debate as it encourages employees to leave working life before the standard retirement age of 67 years. After the government presented a white paper on a new pension system in 2006 (NO0611019I), one of the main issues to emerge was whether the AFP scheme would be continued, given that the state’s economic contribution to the AFP scheme was due to be evaluated in 2007. This evaluation would coincide with a full review of the national insurance pension scheme.

The continuation of the AFP was one of the main demands from the employee side in the 2006 bargaining round (NO0604019I). In contrast, the employers called for an abolition of the scheme as they considered it as being too costly, thereby making the companies involved less competitive. A new collective agreement was finally reached with the help of the Prime Minister, Jens Stoltenberg, who confirmed his intention to extend the present AFP scheme until 1 January 2010.

One of the main features in the new pension system, which is to be implemented from 1 January 2010, is that employees who remain in employment for longer will benefit more than those with a shorter working career. In conjunction with the new pension system, an early retirement scheme is also to be introduced, which will be applicable to all employees from the age of 62 years. However, employees who choose to take early retirement will end up with considerably lower annual pension payments compared with employees who stay in employment until the standard pension age. Central questions that emerge, therefore, include how to integrate a revised AFP scheme with the new general early retirement scheme, and how to find a scheme that is acceptable for the trade unions and at the same time encourages employees to stay in employment for a longer period of time.

Composition and mandate of new commission

The newly-established tripartite commission comprises representatives of nine employer organisations and trade unions, and is headed by the Minister of Labour and Social Inclusion, Bjarne Håkon Hanssen. The commission is expected to finalise the new proposal on early retirement by the end of 2007, before the 2008 pay negotiations begin. The mandate of the commission (in Norwegian) states that the new proposal should take into consideration both the existing rights of workers and also the aim of the new pension system – to make it worthwhile for older workers to remain in employment after the age of 62 years. As part of its brief, the commission will discuss the economic framework of a new AFP scheme, the design of a new system, how a new system should be financed and regulated, as well as how a new scheme can be coordinated with the overall pensions system.

The commission should take as its point of departure the principles laid down in the government’s 2006 white paper. The white paper outlines how the state’s contribution to the AFP may be continued. As part of such an agreement, the state’s contribution to a new scheme is to be made statutory. The state contribution should make no distinction between those who decide to leave employment early and those who decide to remain at work for as long as possible. All employees subject to the AFP will receive a supplementary pension regardless of whether they decide to retire before the age of 67 years. As it currently stands, only those who choose to take early retirement benefit from this arrangement.

Commentary

The results of the commission’s ongoing work will have to be incorporated into the wage settlements in 2008, as this will be the last bargaining round before 1 January 2010. The design of the future AFP scheme will ultimately be a bargaining issue; depending on the outcome of the commission’s work, the 2008 wage settlements could thus prove to be difficult.

Kristin Alsos, Fafo Institute for Applied Social Science

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