The original AFP scheme was purely an early-retirement scheme, which over time applied from the age of 62 up to 67. The benefit was reduced against earned income. To be covered by the scheme, an employee had to work for an employer bound by a collective agreement.
From a worn-out workers' supplement to a lifelong benefit
The most significant change came with the Norwegian pension reform, which took effect on 1 January 2011. Its main aims were to make the pension system more sustainable in the light of rising life expectancy, and to facilitate a flexible exit from working life and a stronger link between work and pension. The state covers a large share of the costs of AFP, in the region of 35 to 40%.
The current scheme in the private sector
AFP was then converted from an early-retirement scheme into a lifelong supplement scheme. This involved several far-reaching changes:
- Lifelong benefit: AFP is now paid for life, not only until the age of 67.
- Pension supplement: AFP can be paid alongside the retirement pension from the occupational pension scheme, and drawing it also requires the National Insurance retirement pension to be drawn.
- Flexible drawing: AFP can be drawn from the age of 62 and can be combined with work without any reduction. AFP is adjusted for life expectancy when drawn. The life expectancy of your birth cohort is a factor in the calculation.
- It is calculated on all pensionable income in the National Insurance Scheme up to and including the year the employee turns 61, not only on income from employment covered by the AFP scheme.
Main conditions
- Affiliation with an AFP company at the time of drawing.
The employee must have been employed by a business with a collective agreement on AFP for the last three years. - Seniority requirement at the age of 62.
The employee is normally required to have been employed by one or more AFP-affiliated businesses for at least 7 of the last 9 years before turning 62 (the so-called qualifying period). - Occupational activity.
You must have performed actual work during the qualifying period and in the period up to drawing AFP; merely receiving pay is not enough. - Not receiving certain benefits.
Disability benefit from the National Insurance Scheme after the age of 62 results in loss of the right to AFP. - Age requirement.
AFP can be drawn at the earliest from the age of 62, provided that the conditions for drawing the retirement pension from the National Insurance Scheme are also met. - Severance pay, etc.
If severance pay or an ex gratia pension is paid, or exemption from work is granted, between the ages of 59 and 62, this may result in loss of the right to AFP.
AFP is not an accrued right – but major changes must be reflected in both collective agreements and statutory provisions
A significant difference from both the National Insurance Scheme and occupational pensions is that today's AFP is not an accrued right. It is crucial that the employee meets the conditions at the time of application, and these conditions may be changed entirely. Even so, changes to the AFP scheme require collective agreements to be amended, and the statutory provisions that set the conditions for the State's contribution must also be amended. Major changes are expected to involve transitional periods for birth cohorts approaching the age at which they can draw it. If you already meet the accrual and age requirements, fear of rule changes should in any case not be a reason to draw AFP early. That said, early drawing may well be appropriate in light of individual circumstances.
You can find more information about the scheme at afp.no.
For birth cohorts up to and including 1962, AFP is still an early-retirement scheme; it is paid from the age of 62 to 67, is reduced against earned income, and is paid before the occupational pension and the National Insurance pension come into payment.
From the 1963 cohort onwards, AFP is modelled on the private sector. There are some differences in how the benefit is calculated, and there is no requirement to draw the National Insurance pension in order to start AFP. The conditions are otherwise very similar. Transitional rules have been laid down which mean that the seniority requirement in the scheme is lower for the earliest birth cohorts.
Employees who are covered by a public-sector occupational pension are in practice also covered by the AFP scheme.
One aim of restructuring AFP in the public sector was also to facilitate mobility between the private and public sectors, so that the loss of AFP would not be a barrier to this.
For employees who move from private-sector AFP to the public sector, this has been put in place. Time accrued under private AFP counts as seniority for the requirement to have been in the scheme for seven of the last nine years at the age of 62.
No final solution has been reached regarding mobility in the other direction, that is, those who move from the public to the private AFP scheme. But a provisional solution has been decided for the 1963 to 1965 birth cohorts. They may obtain the right to AFP from the Norwegian Public Service Pension Fund if counting their time in the public sector would have given them the right to private AFP.
The current AFP scheme in the private sector has conditions that mean a relatively large proportion of employees are turned down. Employees who may have spent many years with an employer that has an AFP scheme gain no benefit from it if they leave working life before the age of 62, or move to an employer without an AFP scheme.
The calculation of AFP is decoupled from the time spent in the AFP scheme. This means that an employee with seven years in the scheme can receive the same payment as an employee with 30 years in the scheme, given the same income history and age.
LO and NHO evaluated the AFP scheme in 2017, and in 2018 they agreed to examine alternatives. A joint report then followed in 2021, one aim of which was to change the scheme so that it became fairer and more predictable, and so that younger employees too could get something out of it.
In the study, LO and NHO envisaged a long transitional arrangement in which many birth cohorts would receive an AFP based partly on the current rules, while there would gradually move to a calculation based on income from the company with the AFP scheme. Under the study, the current conditions for AFP were to be phased out. The biggest challenge was the finances; the employee side wanted accrual rates that would give benefits on a par with the current scheme, while the employer side, for its part, did not want to increase employers' costs.
There is still no agreement. AFP may become a topic in the 2027 interim wage settlement.
