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How much do you receive in retirement the day you retire from working life?
Probably many of us have a hard time answering this question.
Awareness probably increases with age, but it’s not surprising that the average 50-year-old hesitates a bit when faced with “the big pension issue.”
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“Account overdose”
Even after pension reform, our pension system is not as simple and understandable as we would like, writes graduate economist Hallgeir Kvadsheim at Pengeverkstedet.no.
Everyone has the State National Insurance at the bottom, and most of us also have an ongoing pension plan with the employer. But what about all the pension agreements you have with previous employers, as well as individual pension savings (IPS) and other pension savings?
This is where there will be a lot of accounts to deal with and the hardest to follow.
All in one account
Therefore, “Own pension account”, which arrives shortly after the New Year, is something that many can look forward to.
– Most of the 1.5 million who are covered by the plan will likely experience reduced rates on their pension income from previous jobs, says Elisabeth Realfsen in Finansportalen to Dinside.
You who have a defined contribution pension, that is, the majority of employees, will receive both the current pension plan and the previous pension capital certificates in one account.
Kvadsheim explains pension capital certificates
- A pension capital certificate is a savings from all your previous employment relationships.
- When you leave a business, you get the money the business has saved you, and you can put it where you want.
- However, most have smaller deals spread across multiple pension providers – they don’t charge for them.
- This is expensive and gives poor vision.
This is because very few of us have made the most profitable decisions in the pension market and therefore pay far more in administration expenses than necessary.
– By “hiding” employees to merge their pension and capital rights, we want to ensure that many receive more in pension. At the same time, consumers will have a better overview of their own pension savings when the pension funds are pooled in one place, Realfsen says.
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Good news for temporary and temporary workers
With the introduction of your own pension account, the requirement to work somewhere for more than 12 months in order to receive an accumulated pension when you retire is also removed, Kvadsheim notes.
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This means that you get the pension that the employer has saved you independently duration of employment. This is very good news, especially for young people and other people who have shorter-term jobs, such as temporary staff or other temporary employees.
Benefits of “Own pension account”
- Lower costs: It’s a lot of money to save by gathering all your pension capital certificates in one place. For many, this money will be saved for decades until they retire, and then even small percentages can make up a large part of future pensions.
- Better overview: All of your Pension Capital Certificates are bundled into a single agreement along with your Defined Contribution Pension. This makes it easy for you to keep track of your balance and ongoing returns, and you don’t have to log in with three or four different providers.
- Manage your savings: It will also be easier to control how the savings will occur. Most providers allow you to decide which savings profile you have (low (20%), medium (50%) or high (80-100%) share), and in your new pension account all savings obtain the same investment profile.
- Innovation and competition: A number of innovative new players in the fund market, such as Nordnet, Sbanken, Kron and Duvi, are expected to provide greater competition and a better fund offering.
Source: Hallgeir Kvadsheim / Pengeverkstedet.no
Not everyone benefits from pension news
As you probably know, there are over 1.5 million employees living in Norway and therefore it is on the cards that not everyone will benefit from the “Own Pension Account” in 2021.
– The scheme with the pension account only applies to employees in an active working relationship with one private employer and you have a defined contribution pension today, Realfsen says.
– This means that there are many who are not covered by the plan and have yet to take active steps to ensure that pension fund fees are not too high, he continues.
This includes those who currently work in the public sector no of the scheme, and they must take care of themselves. The same applies to the unemployed and people moving abroad. For these groups, the advice to collect your pension capital certificates from a company and choose a company that does not charge a management fee still applies.
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How it works with “Own pension account”
Kvadsheim, MSc in Economics, has set an example showing how the New Years pension account is organized, as well as how of you can make your own decisions for this account:
- You have, for example, a defined contribution pension with Storebrand today and three certificates of pension capital from previous employers (two are managed by Nordea, one by DNB). Starting January 1, everyone automatically meets at Storebrand, unless you book against this. The “own pension account” is automatically created with the pension provider chosen by your employer.
- Of you are, on the other hand, free to choose where you want your pension savings, and so you can move the account to another provider. However, keep in mind that this will move both your current pension agreement and previous pension capital certificates.
- In our example, it is conceivable that you want to collect everything in Nordea, and in that case the old arrangement in DNB plus your current defined contribution pension with Storebrand will carry over there.
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Move your pension? Avoid the fee trap!
Realfsen in Finansportalen notes that you must pay the pension earnings management fee from a previous job, while the current job pension earnings fee must be paid by your employer.
– If you choose a pension company yourself, you have to pay a management fee all the accrual of your pension, but you will receive a so-called “standard compensation” from the employer for the portion that applies to the pension contribution earned in the current employment relationship, Realfsen says.
The “standard compensation” is the management fee that the employer would have paid for you if you had stayed with the employer’s pension company. If you decide to take the opportunity to choose a pension company yourself, you need to make sure that you choose a company that has a low fee.
