New Contractualism in European Welfare State Policies by Rune Ervik & Nanna Kildal

Author:Rune Ervik & Nanna Kildal [Ervik, Rune & Kildal, Nanna]
Language: eng
Format: epub
Tags: Public Policy, European, Political Science, World, General
ISBN: 9781317088608
Google: Fpu1CwAAQBAJ
Goodreads: 29513361
Publisher: Routledge
Published: 2016-03-09T00:00:00+00:00

Norway

Historically, the British pension system had a stronger element of contractualism and personal responsibility than that of Norway. Still, around the turn of the century, a reframing of pensions also took place in Norway in which the personal responsibility paradigm was strengthened. The following changes were important – in 2001, legislation for occupational pensions introduced a shift from DB to DC schemes. This implied a risk shift away from the collective sharing of the burden towards the individual who must now bear the investment risk. This change was reinforced in 2006 as part of the major pension reform process when legislation on obligatory service pensions was adopted (‘Obligatorisk tjenestepensjon’). Here, almost all new schemes were based on DC and so the risk shift towards the individual became further entrenched. Developments within individual private schemes have been typified by liberalisation – stronger diversification of pension products and more competitive markets. In 2011 a major reform of the public pension system was implemented after ten years of reform activity.

The key justification for the need to reform the system was based on concerns about the future economic sustainability of the old system because of a worsening of dependency ratios and increased longevity.10 Continuing with an unreformed system would require substantial tax increases that would jeopardise the nation’s economic competitiveness and undermine work incentives. This was the motive for the appointment of the Pension Commission in 2001, mandated to report on a future, sustainable pension system. The Commission issued its report in 2004. The following reform proposals are of particular interest as indicators of the movement from collectivism to individualism. The major retrenchment element of the reform proposal was the introduction of a longevity factor (delingstall) that would take into consideration longevity for the specific age cohort an individual belongs to. In calculating the yearly pension benefit payment the accrued pension wealth (pensjonsbeholdningen) was to be divided by the longevity factor to reflect the fact that increases in the longevity of a certain cohort would reduce yearly pension benefits. Thus in contrast to the old system, where longevity risks were carried by the taxpayers collectively, this risk was now shifted to the individual. Still, as another aspect of the reform proposal was the introduction of a flexible pension age from 62–75 years, this in principle opened the way for the individual to choose to compensate for the reduction of pension benefits (caused by the longevity factor) by working longer.

These two changes mark a significant step away from collective risk sharing towards individualised personal responsibility. Another element pointing in the same direction is the change in the way pensions are accrued. The Commission recommended the removal of the ‘best years rule’ to be replaced by an ‘all years rule’ or life income principle in which every year of pension contribution counts in deciding the pension benefit.11 The idea was to provide pension benefits that better reflected the individual’s contributions over their working life. This change was also in line with the advance of the benefits

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