Activity of EEA pension funds in Norway

General comments

Life insurance companies are major providers of pension schemes in Norway. Pension schemes are also offered by banks and securities fund management companies . In the Norwegian legislation 'pension undertaking' is a blanket term for ordinary pension funds and pension undertakings offering defined contribution pension schemes on a general and commercial basis. In this document, however, the term 'pension fund' encompasses all institutions covered by the IORP directive, including commercial multi-employers pension funds.

A new Act of 10 April 2015 on Financial Undertakings and Financial Groups (Financial Undertakings Act) entered into force on 1 January 2016. The Act also covers insurance companies and pension funds. Chapter 5 of the Act regulates the activities of foreign EEA companies in Norway, and sections 5-4 and 5-5 of chapter 5 set out the provisions of the Financial Undertakings Act and the revised Insurance Act that apply to foreign EEA insurance companies and pension funds.

The following paragraphs contain an overview of legislation governing the activities in Norway of foreign EEA pension funds. Note that the overview is not exhaustive. 

1. General legislation

EEA pension funds should be familiar with the following legislation:

1. Act of 27 November 1992 no. 111 on Choice of Law in Relation to Insurance (as far as appropriate)
2. Act of 16 June 1989 no. 69 on Insurance Contracts with appurtenant regulations applies as far as appropriate. See section 10-1 of the Act.
3. Act of 9 January 2009 no. 2 on Marketing.
4. Act of 13 June 1980 no. 24 on Tax Assessment chapter 5. Please note that pension funds are required to disclose insurance amounts etc. to the tax authorities. Queries relating to taxes should be directed to the Ministry of Finance.
5. Act of 10 July 2005 no. 41 on Insurance Mediation and Regulations on Insurance Mediation of 9 December 2005 no. 1421 deal with insurance mediation.
6. Act of 25 June 1999 no 46 on Financial Contracts and Financial Assignments (Financial Contracts Act). Agreements on loans issued to pension scheme members may fall under this Act.
7. Act of 20 June 2003 on measures to combat the laundering of proceeds of crime etc. regulates activities in Norway.
8. Act of 27 June 2008 no 62 on Individual Pension Schemes and other Norwegian acts concerning pensions as mentioned below.
9. Act of 7 December 1956 on the Supervision of Credit Institutions, Insurance Companies and Securities Trading etc. (Financial Supervision Act) and appurtenant Regulations of 28 December 1993 no 1257 on the supervision of financial institutions and management companies headquartered in another EEA state and operating in Norway etc.

It should be noted that Norwegian legislation prohibits an insurance broker operating in Norway from receiving commission from insurance companies. Commission is to be paid directly by the policyholder. The prohibition, directed both at the insurance broker and the insurance company, is designed to prevent doubts as to the independent role of the broker. However, the prohibition does not apply to the mediation of insurance contracts written by EEA insurance companies which are not established in Norway, provided that the commission received from the insurance company is transferred to the principal (customer).

A pension fund is obliged at all times, at the request of Finanstilsynet, to provide the information concerning its activities that Finanstilsynet needs in order to perform its supervision in accordance with the legislation applying in Norway.

2. Norwegian pensions legislation

The following acts with appurtenant regulations apply to occupational pension schemes (currently in Norwegian only):

• Act of 24 March 2000 no. 16 on Defined Benefit Occupational Pension
• Act of 24 November 2000 no. 81 on Defined Contribution Occupational Pension
• Act of 21 December 2005 no. 124 on Compulsory Occupational Pension
• Act of 13 December 2013 on Occupational Pensions (Hybrids)

The main provisions of these acts require all employees to be included in a pension scheme from their first working day. In addition, an employee who leaves a company without entitlement to a pension starting immediately shall upon termination of pension scheme membership retain his/her right to a paid up insurance policy or pension capital certificate unless membership at that point has been shorter than 12 months. The pension capital pertaining to the pension scheme may be managed in a specific investment portfolio where the investment risk is carried either by the employees or by the employer. The pension acts set requirements in terms of asset portfolio composition and risk diversification in investment portfolios where the risk is carried by the employees or by the employer. See chapter 3 of the Act on Defined Contribution Occupational Pensions, chapter 11 of the Act on Defined Benefit Occupational Pensions and chapter 5 in the Act of 13 December 2013 on Occupational Pensions (Hybrids).

The Act on Defined Benefit Occupational Pensions sets requirements for defined benefit schemes and also defined contribution schemes based on biometric risk. Chapter 3 states who may, and who must, be members of a pension scheme. Chapter 4 contains rules regarding the pension qualifying age, minimum requirements as to period of service, rules concerning pension benefit accumulation and entitlement to a paid up insurance policy on resignation before reaching pension qualifying age. Chapter 5 contains provisions on retirement pension, including (a) the principle of proportionality in pension plans (i.e. total pension benefits as a ratio of salary should not be higher for high- than for low-paid employees) and (b) upper limits on pension benefits.

New legislation permits retirement pension to be drawn at age 62. When drawn before or after the member reaches age 67, retirement benefits shall be recalculated on actuarial technical bases. Chapters 6 and 7 regulate disability pension and surviving dependent's pension. See also the comments under point 4 below regarding transfers of paid up policies issued under defined benefit occupational pension schemes.

The Act on Defined Contribution Occupational Pensions regulates defined contribution pension schemes (not based on biometric risk). Chapter 4 states who may, and who must, be members of a pension scheme. Chapter 5 contains rules regarding the contents of the contribution plan including (a) the principle of proportionality in pension plans (i.e. pension contributions as a ratio of salary should not be higher for high- than for low-paid employees) and (b) upper limits on pension contributions.

Chapter 6 contains rules concerning entitlement to the pension capital accumulated upon leaving a company. Chapter 7 contains rules concerning the drawing of retirement benefits. New legislation permits retirement pension to be drawn at age 62. Act of 13 December 2013 no. 106 on Occupational Pensions (Hybrids) contains similar regulation.

Pension funds intending to offer defined contribution schemes for sponsors in Norway must notify Finanstilsynet, according to Regulations of 30 June 2006. Sections 4 and 6 of these regulations require such notification to provide further information about the product and the composition of the adopted price tariff used for the contribution schemes offered. The same applies to price tariff changes or other changes to the pension schemes product. Notification shall include a description of the product, and a description of mandatory insurance providing premium exemption during disability relative to the degree of disability.

3. Norwegian legislation concerning the duty to provide information

Provisions of the pension acts on information to the employees
Act 24 March 2000 no 16 on Defined Benefit Occupational Pensions section 2-8 and Act 24 November 2000 nr 81 on Defined Contribution Occupational Pensions section 2-7 with appurtenant regulations of 22 December 2000 no. 1413 state what information the employer has to give to its employees. The pension fund is obliged to provide the employer with information enabling the employer to fulfil its information obligations towards the employees. The Acts now also contain information requirements on the keeping of accounts in defined contribution schemes and information on the consequences of the point in time chosen to draw pension benefits under the scheme. Act of 13 December 2013 no. 106 on Occupational Pensions (Hybrids) contains similar regulation.

Act of 27 June no 62 on Individual Pension Schemes section 1-6 states what information the pension provider (life insurer, bank, pension fund or a company which manages securities funds) has to provide to the customer/policyholder. Where the contract is an insurance contract, the above section supplements the information obligations of the Insurance Contract Act chapter II with appurtenant regulations.

Provisions on information in the Act on Insurance Contracts
Act of 16 June 1989 no. 69 on Insurance Contracts chapter 11 section 19-3 and appurtenant regulations laid down in accordance with section 11-4 apply as far as appropriate. The regulations set out the insurer's duty to provide information to the insured. The Act also governs the relationship between pension funds and their members, insofar as appropriate. See section 10-1 of the Act and the Act on Choice of Law in Relation to Insurance.

Provisions of the Insurance Act concerning information to sponsors and members

Keeping of accounts
The Insurance Act sections 3-23 or 4-16 with appurtenant regulations relating to the keeping and statement of accounts, applies. This legislation requires a pension fund to open and maintain a set of accounts which shall contain accounts for the scheme and the status at 31 December each year. Each year the pension fund shall send the policyholder a statement of account. The above provisions also apply to former employees with a paid up insurance policy or a pension capital certificate.

Legislation on information on various elements of the adopted price tariff
Section 3-6 first subsection of the Insurance Act regarding the contents of the applied price tariff and payment of premiums applies. This provision requires the pension fund to inform the policyholder about the various elements included in the calculation, and other terms or conditions of importance in the calculation of premiums. See section 4 below.

Chapter 2 of the Insurance Act: information to members
Section 2-7 of the Insurance Act and provisions of Regulations of 30 June 2006 no 869 concerning information requirements to members and pensioners apply. This legislation is based on the IORP directive and supplements the above mentioned provisions of the pensions legislation and the Act on Insurance Contracts. 

4. Further provisions of the Insurance Act that apply to foreign EEA pension funds

As mentioned above, sections 5-4 and 5-5 of the Financial Undertakings Act state which provisions of that Act and of the revised Insurance Activity Act apply to foreign EEA insurance companies and pension funds. Comments follow.

Transfer of funds accumulated under a pension scheme
Chapter 6 of the Insurance Act applies. This entitles the policyholder to transfer their life insurance contract. The same right applies to a former employee with a paid up insurance policy or a pension capital certificate. The right to transfer a pension scheme implies the transfer of the funds accumulated under a contract to another life insurance company, pension fund, bank or securities funds management company. However, under the Act such a transfer simply entails termination of the contract and transfer of its assets to an equivalent contract established in another pension institution. This means that the receiving institution must be authorised to engage in the activity related to the contracts which are to be transferred. Pension schemes based on biometric risk can therefore not be transferred to a bank or a securities funds management company. Furthermore Finanstilsynet takes the position that the right to transfer requires the receiving pension institution to have filed notification of cross-border activity into Norway.

The right to transfer applies to any former employee with a paid up insurance policy or a pension capital certificate. Accordingly a paid-up policy can be transferred from one pension institution (life insurer or pension fund) to another pension fund or life insurer, within the EEA jurisdiction. Section 6-13 regulates the transfer of a paid-up policy derived from an occupational pension scheme. A paid-up policy derived from a defined benefit scheme must in principle conform to the Norwegian Defined Benefit Pensions Act. This, in Finanstilsynet's view, implies that after a transfer the policy conditions must be largely met by the new pension institution which again implies that all the benefits under the policy must be the same in the contract with the new life insurer. A life annuity policy cannot for instance be converted into a policy with limited benefits or to an index linked contract where the policyholder bears the investment risks. New legislation however permits retirement pension to be drawn under the policy (in accordance with sections 5-1, 5-7a to 5-7c of the above Act) at the age of 62 (the retirement benefit should in these cases be recalculated on actuarial technical bases). A situation may arise where the accumulated funds transferred are insufficient to meet the actuarially expected costs of pensions payable by the receiving pension fund. A precondition where paid up policies from a defined benefit pension scheme are concerned is that the policyholder should not be required to pay additional premium when transferring a policy to a new pension institution. 

Comments to the legislation mentioned above

The Norwegian legislation must be interpreted in light of the EU general good doctrine and the home state’s exclusive right to regulate financial conditions. This is for instance the case for those provisions of Chapter 6 of the Insurance Act with appurtenant regulations that deal with the right to transfer a pension scheme with accumulated funds. For instance where the legal provisions regulating the right to transfer a pension scheme refer to different types of provisions (premium reserve, supplementary provisions, fluctuation reserves, claims provisions, risk equalisation fund) the law only addresses what types of provisions are to be transferred. The actual types and size of the provisions are determined by the legislation of the insurer's home state. A situation might occur where the accumulated funds transferred are insufficient to meet the actuarially expected costs of pensions payable by the receiving company. In this case, according to section 6-10 third subsection of the Insurance Act, the policyholder must make a contribution towards funding the shortfall (an exception applies as regards the transfer of paid up policies from a defined benefit pension scheme). Note that in this case the requirement is directed at the policyholder: it is not the intention to regulate the provisions as such of foreign EEA insurance companies. Reference is also made to the provisions concerning accumulated profit mentioned above.