Pension providers in Norway have praised the government for finally acting on a promise to balance tax breaks on private pension savings with the level of tax paid when those savings are eventually paid out.
Announcing the proposals which will form part of the revised 2017 budget, Finance Minister Siv Jensen said: "The government wants to facilitate increased private savings for retirement."
What the government is planning is to introduce is a new scheme for individual pension savings which will be more tax-favorable than the current Individual Pension Savings (IPS) regime.
While contributions to an IPS can be deducted from a person's general income tax liability, pension payments in retirement are then taxed as pension income.
Pension income tax includes general income tax, step tax, and social security contributions.
In the new scheme the government is putting forward, however, pension out-payments will only be taxed as ordinary income.
Welcomed by the financial sector
Tom Staavi, information director at financial sector industry association Finance Norway (Finans Norge), welcomed the long-awaited proposals.
"We think it is great that the government is now delivering on what they promised in the Sundvolden Declaration of 2013," he said, referring to the document of political intentions drawn up by the coalition partners in the wake of the last general election.
"Tax symmetry is important," he said.
"The problem with the scheme we have had up to now is that there has been a higher rate of tax applied on payments out than the tax rate for deductions on payments in," he said, adding that this has meant that many people stopped using the scheme.
As with the current scheme, returns on savings in the new one will also be exempt from property tax and current income tax, and the maximum amount Norwegians can put into the scheme every year is being almost tripled to NOK 40,000, from NOK 15,000 in the current scheme.
On top of this, there will be no ceiling on total savings in the scheme, which will apply from the 2017 tax year.
The limit on how much self-employed people can put away in their pensions is increasing to 6 percent of estimated personal business income from 4 percent, the government has said.
Financial group Storebrand said the announcement marked "a joyful day for Norwegian pensioners".
"When pensions from the National Insurance Fund (Folketrygden) are reduced, we need to save more, and it is important to have good tax arrangements that stimulate this," said the group's Oslo-based communications manager Bjørn Erik Sættem.
"Now IPS will be a really good savings scheme for everyone, with broad limits and good tax rules, and it is also a good news that self-employed workers get better rules for their pension savings," he said.
Looking for political support
Torun Wahl, Chief Executive of KLP Bedrijftpensjon, part of the country's largest municipal pensions provider Kommunal Landspensjonskasse (KLP), also welcomed the proposals.
"The new scheme will make it more worthwhile to save for a pension," she said.
KLP says it will offer the product from autumn 2017, even though it eschewed its predecessor.
The company said that back in 2008 it had investigated whether the company would offer an IPS product, but decided against it — mainly because it was not suitable for the majority of KLP's potential customers.
At the time, it concluded that because of the tax and costs associated with the actual savings, it was more profitable to have a pure savings product in a fund, where the customer chose between different shares in mutual equity and bond funds.
Now the plans need to gain approval by parliament before coming into force.
Details of the new scheme will have to be drawn up, and the Finance Ministry has said it intends to submit draft regulations for consultation during the spring of 2017, so the scheme can come into force this autumn.
"We hope the proposal gets broad political support," said Sættem.
"Retirement savings are long term and it is important that we now get predictability and calm about the future for this," he said.
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