NORWAY - The pension reform in Norway could be considered less urgent and political pressure to limit the reform may increase if the high oil price persists over time, experts say.
A recent report published by the independent Norwegian research and analysis firm Econ Analyse predicts that the petroleum fund will be worth NOK 5.2trn (US$800bn) in 2020 if the oil price stays as high as US$50 per barrel. That is twice the size of the estimated GNP in 2020.
The increased revenues from oil could enable the Norwegian government to fulfil its pensions obligations without reforming the current pension system. Knut Vrålstad, partner at ECON Analyse, said that a review of the pension system may be considered less urgent if the high oil price persists.
A high oil price will, if it persists, sooner or later make the political establishment in Norway reconsider many of their positions, and a revision of the pension system may very well seem less urgent at that time, he said. That said, we are currently in the middle of a reform process, and it does not seem likely that there will be significant impacts on that process from a still rather uncertain possibility of persistently high future oil prices. However, Rolf Skomsvold (pictured), general secretary at the Norwegian Association of Pension Funds, said that although the pension reform will most likely be carried through regardless of the oil price, a high oil price over time could lead to “modifications” of the reform.
The major political parties have agreed to carry through at least parts of the pension reform and I think they will stick to that, he said. However, the reform may be carried through with modifications and the political pressure to limit the reform may increase.
Norway has an ageing population and the International Monetary Fund (IMF) has labelled rising pension costs a “major threat” to long-term fiscal sustainability.
In a white paper presented to the Norwegian parliament in December last year, the government proposed key reforms to the pension system with focus on closer correlation between individual income and pension. Although most of the key proposals were either watered down or rejected by the parliament earlier this year, there is widespread political consensus in Norway to reform the current pension system.
It is expected that a new review will take place after the general election in September this year.
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