NORWAY - Kommunal Landspensjonskasse (KLP), the insurer that covers 95% of municipal and county pension provision in Norway, is considering adding defined contribution products to its offering on the back of a proposed new law for mandatory occupational pensions.
To date KLP’s pension provision consists entirely of defined benefit pensions. But Bjorn Hamre, executive vice president, KLP, said the government’s plans to introduce mandatory occupational pensions from January 1 next year had forced the company to consider expanding its product range.
“Our board of directors will consider [DC] and may make some decisions this very autumn,” he said.
“Up until now there has been no need for this product, because the vast majority of customers in our market are already linked with us based on agreements between the parties in the labour market, or based upon certain laws. But that doesn’t mean we can close our eyes and sleep sweet. We have to be on alert and maybe set up this product so if any clients come to us considering a change or a supplementary product, we can provide that.”
The proposed law applies to all companies with at least two employees and requires employers to contribute a minimum 2% of wages to the pension scheme, if the scheme is defined contribution.
Hamre acknowledged the trend to DC, however he said the extermination of DB was a long way off.
“We may not entirely rely upon the DB product in the long run,” he said.
“Though I would stress that for many generations still, [DB] will be the main product in the Norwegian market and that is due to the fact that any company in Norway that has an occupational DB product at the moment, even if they close that and open a DC product, they cannot redefine the funds and move the funds over to the new product.”
At year-end 2004, funds in DC products in Norway amounted to just NOK1.6bn, while funds in DB products totalled NOK350bn.
“This will not be so in 10 years time, but the NOK350bn will also grow, because there will be new premiums coming in and secondly, the return on equity will always be there and that will lead to strong growth in those funds,” Hamre added. “It will take a very long time before these defined contribution funds amount to a level that will defend all the money invested in those products.”
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