Accrued to date liabilities, national numbers 2014-2018
This report provides a documentation of calculations made for households’ earned pension entitlements up to date towards different pension schemes in the Norwegian pension system for the years 2014 to 2018. The report covers the pension obligations related to long-term benefits from the National Insurance Scheme (NIS) and occupational pension schemes. The backdrop is the demographic development towards an increasingly ageing population. The public financed NIS is the first and far most important pillar in the Norwegian pension system, and data for earned entitlements provides important information regarding future challenges for public finance. From households’ point of view, it is also important to have an overview of earned pension rights and expected future benefits.
While data for entitlements in funded schemes have been compiled for a long time in the national accounts on bases of accounting statistics for life insurance companies and pension funds, there has been no information regarding entitlements in unfunded schemes. However, since the end of the 1990s Statistics Norway’s dynamic microsimulation model MOSART has been used to estimate accrued up to date entitlements in NIS. During the last years, the model is further developed to include occupational pensions in the Government Sector. Occupational pensions in the Central Government Sector is the second most important unfunded scheme in Norway. Although the Local Government scheme is based on the same principles as in Central Government, the Local Government scheme is funded.
Both to improve national overview and international comparability regarding earned pension entitlements, recommendations on quantification of unfunded schemes were incorporated in European Standards of Accounts (ESA) in 2010. Data for all pension schemes in the Norwegian pension system are summarized in table 29 in Eurostat’s table program. The calculations show that total pension entitlements for households by the end of 2018 amounted to more than 4 times Gross Domestic Product (GDP) for Mainland Norway. NIS is the corner stone of the pension system, and entitlements for long-term benefits (old-age, disability and survivor’s benefits) by the end of 2018 amounted to 3.4 times GDP Mainland Norway. The amount relative to the value of GDP has been approximately constant from 2014.
Accumulated entitlements for each of the occupational pensions in Central Government, Local Government, and defined benefit schemes in the Private Sector amount to about 20 per cent of the value of GDP and have also been approximately constant since the end of 2014. Accumulation of entitlements in defined contribution schemes in the Private Sector is increasing but did not amount to more than 8 per cent of the value of GDP by the end of 2018.
Calculation of entitlements in unfunded defined benefit schemes like NIS and occupational pensions in Central Government is based on expected future payments. Choice of net rate of interest (difference between the nominal rate and average wage growth used in indexation of entitlements) is therefore of significant importance. A net rate of interest of 1 per cent is chosen in the main alternative. In the previous system for NIS, which applied up to the reform in 2011, and the existing system for occupational pensions in Central Government effective until the 1962-cohort, further growth in life-expectancy and retirement age were of great importance. With the new actuarial system for old-age pensions in NIS from 2011 and occupational pensions in Central Government effective from the 1963-cohort, the earlier uncertainty caused by these two components is almost eliminated. The reform in 2011 also caused a reduction in households’ accumulated entitlements.