If you don't check this, you could lose millions in pension

The return you get on your occupational pension is crucial for the amount you will receive when you retire, says Anders Kvam, pension expert at Tekna. By the time you reach 67, the investment return can be just as large as the contributions themselves. This is the effect of compound interest, which over many years can create major differences depending on the interest rate in your pension scheme. In total, the difference can amount to several million kroner over the course of a working life.

Defined‑contribution schemes dominate

In 2006, all companies were required by law to establish an occupational pension scheme for their employees. Among those that already had pension schemes, most have transitioned from defined‑benefit schemes to defined‑contribution pensions.

Today, defined‑contribution pensions are by far the most common type of occupational pension in the private sector. A 2021 workplace conditions survey among Tekna representatives in the private sector showed that around 88 per cent of members have a defined‑contribution occupational pension.

In broad terms, the Norwegian pension system has three components: the National Insurance Scheme, occupational pensions, and personal savings. In addition, some employees have AFP (the contractual early retirement pension).

You can influence your occupational pension

The National Insurance Scheme forms the basic layer of your pension, and it is something everyone is entitled to. The most important component here is the old‑age pension, which can be drawn from the age of 62 at the earliest. In addition, disability benefits are crucial if you become unable to work. NAV calculates your National Insurance pension based on your income and the number of years you have worked.

Your occupational pension comes from the companies you have worked for throughout your career. In defined‑contribution occupational pension schemes, your employer saves a set percentage of your salary on your behalf. This money is invested in the financial markets to generate returns.

- In most cases, employees can influence how their pension savings are invested. It is extremely important to place the money in a way that gives you the highest possible return. Over time, the investment return can easily make up half of your total pension wealth by the time you reach retirement age. This is why it’s essential to understand how your funds are invested, says Anders Kvam.

He explains that, in general, higher risk (a higher share of equities) gives a higher expected return. Many employers now offer schemes where the equity share is adjusted based on the employee’s age, meaning that younger employees have the highest equity exposure.

- This is good. But not everyone has such schemes, and many people have pension savings from previous jobs (pension capital certificates) that are not managed this way. It’s important that you understand how these funds are managed. It is your pension that will be affected if the management is poor.

In defined‑contribution occupational pension schemes, the minimum percentage an employer can save on your behalf is 2% of your gross salary. The maximum rate is 7%, but the most common level is around 5% on salary up to roughly NOK 1.34 million. In addition, employers can save up to 18.1% of salary between around NOK 790,000 and NOK 1.34 million.

Five best tips

- The best starting point for building a solid pension is, of course, having a good salary and working for an employer that offers a strong occupational pension scheme from early in your career, says Anders Kvam.

Here are his top tips for employees in the private sector:

1. Work for an employer that offers a good salary and a good pension scheme. Always check which pension scheme you have at your workplace. Is it good — or not so good?
2. Understand your rights. The best sources are:
   www.nav.no – Your pension (Din pensjon)
   www.norskpensjon.no – your accrued rights in the private sector
   You should also check the website of the pension provider where you have your rights.
3. If you have a defined‑contribution pension scheme, check how your money is invested. What is the equity share of your savings? Has your employer done the work for you by offering an age‑adjusted investment profile?
4. What about your previous jobs? Have you received pensjonskapitalbevis (pension capital certificates), and how are these funds invested? You can combine these certificates and, if you wish, change pension provider. Different providers charge different administrative fees — check what they cost. A useful tool is the fee checker at finansportalen.no.
5. When changing jobs, check what type of pension scheme you are offered and whether the employer has an AFP scheme. Tekna recommends sending your employment contract to them for review before you sign.

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See how much you can save

- The general retirement age in Norway is 72. This means you have the right to continue working for an employer until the age of 72. Some organisations, however, have an internal age limit of 70, and the public sector also has a limit of 70.

But you may want to reduce your working hours earlier, or combine work and pension. You are allowed to do that, because you can start drawing your pension from the age of 62. When you begin taking out your pension, your pension savings are converted into a monthly pension payment.

You can choose a flexible withdrawal between the ages of 62 and 75, and you are free to combine pension payments with continued work.

The National Insurance Scheme, AFP and public‑sector occupational pensions, as well as defined‑benefit schemes, normally pay out for life. Defined‑contribution pensions, however, are time‑limited and must be paid out over at least ten years from the time you start taking them out, or at the earliest until you reach the age of 77.