NORWAY - A new Government Pension Fund is to be established based on the Government Petroleum Fund (Statens Petroleumsfond) and the National Insurance Scheme to meet long term pension obligations.
The Pension Commission, established by the government to draft the framework of a new pension system, has proposed the new fund to “establish a closer link between fund capital and government pension obligations. “
With pension obligations estimated to increase significantly faster than capital reserves in the Government Petroleum Fund and the National Insurance Scheme, the commission says that the new pension fund may make it easier to gain support for a long-term fiscal policy based on sufficient funds being set aside over the next few years.
The basis of the new fund would be to “ensure that unfunded liabilities relating to old age pensions under the National Insurance Scheme are not to increase over time as a share of Mainland Norway GDP.”
“The commission is of the view that such a Government Pension Fund should be created in the form of a general accumulation of funds, reflecting developments in terms of both government petroleum revenues and pension obligations, and that one should not create a pension fund based solely on actuarial considerations,” the commission said.
The commission said that the Government Pension Fund should refrain from establishing a new fund management organisation, and instead base itself on the existing fund management resources of the National Insurance Fund and the Norges Bank.
“Consequently, investments abroad should be made by the Norges Bank, whilst domestic investments should be made by the National Insurance Fund.
“However, one should allow for part of the capital reserves being managed by private fund managers, as already done by the Government Petroleum Fund in the form of external fund management mandates,” the commission added.
It has recommended that the Ministry of Finance should prescribe more detailed rules on the allocation of fund capital between domestic investments and investments abroad, with importance being attached to monetary policy concerns.
“An important purpose of the Government Petroleum Fund has been for foreign exchange revenue from the petroleum industry to be reinvested abroad, thus avoiding major disturbances to the Norwegian economy and destabilised Norwegian krone exchange rates. Such considerations must also be attended to within the context of a Government Pension Fund.
“Consequently, the major part of petroleum revenues should be reinvested abroad. It is proposed that the Ministry of Finance should prescribe more detailed guidelines as to how the Norges Bank, the National Insurance Fund and private fund managers should perform fund management,” the commission said.
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