Contractual Retirement Pension in the Private Sector
Avtalefestet pensjon, AFP
Coverage
- It is not an insurance scheme, so there is no membership; rather, individuals whose employer takes part in the scheme can apply for a pension from this scheme if they fulfil the qualifying conditions.
- Private sector employees (those covered by a collective agreement concerning AFP) are eligible (this applies to around 50% of private sector employees in 2019).
Financing
General finances
- A combination of PAYG and funded financing from employer premiums, capital revenues in addition to state subsidies.
Contribution rates & state support
- Around 2.5% to be paid by employers on wages between 1 and 7.1 G1.
- 1/3 contribution from state for private sector employees and 2/3 from employer.
Taxation of contribution payments
- Not applicable.
Administration
- AFP Administration (Fellesordningen for AFP) and ‘The Norwegian National Insurance Administration’ (NAV).
Qualifying Conditions
Qualifying conditions
- Qualifying age: 62 years.
- If taking the pension before 70 years of age, the pension needs to be drawn alongside a minimum of 20% of the pension from the national insurance system.
- Individuals need to have worked in a company with AFP for at least 7 out of the 9 years before reaching the age of 62.
- The individual must make a claim for the AFP pension, it is not automatic.
Combining employment & retirement
- AFP can be combined with wage income without an earnings test.
- AFP can only be drawn at a rate of 100%.
Benefits
Pension benefits
- Lifetime supplementary pension to pension from the national insurance system.
- Based on income over life course as well as income-equivalent periods corresponding to those in the national insurance system (but based on period between 13 and 61 years).
Benefit calculation
- Annual AFP = 0.314% of previous annual income up to 7.1 G received between age 13 and 62.
- Adjusted to life expectancy coefficient.
- Indexed according to wage growth minus 0.75%.
Taxation and social security contributions on pension payments
- Pensioners pay reduced social security contributions (5.1%, compared to 8.2% for employees).
- All pension income is subject to taxation; a tax reduction of up to NOK 30,000 is granted to pensioners.
Coverage
Financing
Administration
Qualifying Conditions
Benefits
- It is not an insurance scheme, so there is no membership; rather, individuals whose employer takes part in the scheme can apply for a pension from this scheme if they fulfil the qualifying conditions.
- Private sector employees (those covered by a collective agreement concerning AFP) are eligible (this applies to around 50% of private sector employees in 2019).
General finances
- A combination of PAYG and funded financing from employer premiums, capital revenues in addition to state subsidies.
Contribution rates & state support
- Around 2.5% to be paid by employers on wages between 1 and 7.1 G1.
- 1/3 contribution from state for private sector employees and 2/3 from employer.
Taxation of contribution payments
- Not applicable.
- AFP Administration (Fellesordningen for AFP) and ‘The Norwegian National Insurance Administration’ (NAV).
Qualifying conditions
- Qualifying age: 62 years.
- If taking the pension before 70 years of age, the pension needs to be drawn alongside a minimum of 20% of the pension from the national insurance system.
- Individuals need to have worked in a company with AFP for at least 7 out of the 9 years before reaching the age of 62.
- The individual must make a claim for the AFP pension, it is not automatic.
Combining employment & retirement
- AFP can be combined with wage income without an earnings test.
- AFP can only be drawn at a rate of 100%.
Pension benefits
- Lifetime supplementary pension to pension from the national insurance system.
- Based on income over life course as well as income-equivalent periods corresponding to those in the national insurance system (but based on period between 13 and 61 years).
Benefit calculation
- Annual AFP = 0.314% of previous annual income up to 7.1 G received between age 13 and 62.
- Adjusted to life expectancy coefficient.
- Indexed according to wage growth minus 0.75%.
Taxation and social security contributions on pension payments
- Pensioners pay reduced social security contributions (5.1%, compared to 8.2% for employees).
- All pension income is subject to taxation; a tax reduction of up to NOK 30,000 is granted to pensioners.
1 The wage-indexed basic amount ‘G’ (grunnbeløpet) plays a central role in calculating contributions and benefits under the pension system. 1 G amounts to around 1/6 of average annual full-time labour income (NOK 99,858 as of 1 May 2019).
Legal Basis: Act on State Subsidy to Employees who Receive a Pension based on a Collective Agreement in the Private Sector (Lov om statstilskott til arbeidstakere som tar ut avtalefestet pensjon i privat sektor (AFP-tilskottsloven)) and collective agreements.