The National Insurance Retirement Pension is your state pension from the government. For each year of employment, 18.1 % of your wages are transferred to your pension account. Pension entitlements can only be accumulated up to 7.1 G, or around NOK 605 000. The longer you work, the more you will accumulate in your pension account. If you choose early retirement you will have fewer accrual years and hence a smaller pension. When you retire, the amount accumulated is distributed among the expected number of years of your retirement.
As a result of the great pension reform we now have an increased number of alternatives. If you have accrued a large enough pension you can decide when to retire at any point between 62 and 75 years of age. You can also take out all or part of your pension while still working. This freedom comes at a price however, namely that most of those who retire in the future will get less than today’s retirees. Therefore, private pension savings are more important than ever.
An occupational pension is the pension you get from your employer. There are two types of occupational pension plans: defined benefit pension plans and defined contribution pension plans.
A defined benefit pension gives you a certain percentage of your salary when you retire, normally 66 per cent. It’s the sum of what you get from your National Insurance pension and what you get from your employer that makes up those 66 per cents. Employees in the public sector and some larger companies have defined benefit pensions.
A defined contribution scheme means that your employer saves a percentage of your salary each month. A mandatory occupational pension scheme (OTP) is the minimum requirement that all employers must have for their employers. If you have OTP, 2 per cent of your salary is put aside. The size of the pension you end up with depends on how much has been saved for you, the returns on your savings, and the number of years it will be paid out over.
The money is saved in a pension profile with separate equity and interest rate portions. You can select your own pension profile, and if you have many years before you retire you should choose a high equity portion. This gives you higher returns and more “bang for the buck”.
Learn more about defined contribution pension schemes
Most of us need to start saving for our pensions in addition to this. How much you need to save depends on the lifestyle you want when you retire, how long you want to continue working and your employer’s pension scheme.
Your pension savings will be left untouched for many years. This means that you can make different choices with this money than you make with the money you save for a rainy day, or for your next summer holidays. It doesn’t matter so much if the total value fluctuates along the way, and this is why you should choose a mix of interest rate and equities. We recommend saving a fixed monthly amount. This way you buy shares in both good and bad times for the stock market. In bad times, you get cheaper shares and more value for your money. When the stock market improves, you benefit from the extra shares you could afford back then. When your get nearer to your retirement you should reduce your equity portion.
DNB recommends saving for your pension through PensjonSpar. There is no minimum holding period, and you can make changes along the way. The main thing is to get started as early as possible.