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If you want to live well when you retire, you must take an important step right now.
– A high share of shares in pension savings is crucial for a good pension, as all surveys show, says savings economist Bjørn Sættem on Nordnet.
When, starting February 1, you get all of your current and former private sector employer pension savings in a separate pension account, it will be easier to get an overview.
If you haven’t already, you should log in and change your savings profile, so you can make a decision that is right for you and can provide as much of it as possible during retirement.
– 90 have not changed the profile of pensions, indicating that many have not made an active decision for their pension, says pension expert Stian Revheim at DNB.
A survey by Nordnet also confirms that people have little knowledge of their defined contribution pension. 6 out of 10 in the private sector do not know what participation they have in the employer’s pension.
– It is important to check what you have and if your savings profile suits your age and willingness to take risks, says Sættem.
An age-appropriate savings profile means that the stake is a certain number of shares until you are, for example, 47 years old, and then gradually reduced towards retirement age. When the reduction begins and how much it is reduced depends on the pension provider. We will come back to this.
You must do this
Whether you’re in your 30s, 40s, or 50s, it’s not too late to take steps to try to get the most out of your defined contribution pension.
Both Revheim and Sættem recommend an offensive savings profile if there is still time to retire.
– You will most likely get a higher return and a higher pension, but more fluctuations along the way. If you choose a more cautious profile, you will probably get lower performance, but more predictability, explains Sættem.
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The offending savings profile means that you earn more from equity participation than from interest yield.
Further down in the case, you can see an example of how much more you get in retirement if you choose an offensive versus careful saving profile.
Below you can see an example of DNB, showing the difference between a cautious, standard and offensive savings profile. The percentage distribution may vary depending on the pension provider you have.
– If you choose an offensive profile with us, with 100 percent equity, 70 percent are global equity funds, 20 percent Norwegian equity funds and 10 percent equity funds in emerging markets, says the expert in pensions.
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– When all defined contribution pensions are collected into a separate pension account, everything is put into the savings profile you choose in the defined contribution pension today, he says.
Own pension account
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A separate pension account collects pension earnings from both current and former employers in one place, and is applied to employees who have a defined contribution pension.
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As of February 1, 2021, you will be able to choose whether you want to have your own pension account with your employer’s pension provider or if you want to have your pension account with another provider; in a so-called “self-selected provider”.
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Your own pension account will make your pension easier and more understandable by giving you a better overview and more influence over your own pension. Plus, the reduced costs will help you get more benefits during retirement.
- Basically, your current employer’s pension provider automatically collects the pension accrual, if you do not want to make a reservation against the transfer of the pension accrual from the previous employer.
Source: Norskpensjon.no
So much can you get in retirement
There is a big difference in how much you can get in retirement, whether you have a cautious or offensive saving profile. There may be differences from bank to bank, but we’ve included an example from DNB to show just how crucial this can be.
The figures in the table below are based on assumptions of profitability, wage growth and inflation, according to the industry standard, which is based on a long-term annual return of 5.75%.
As you can see, the table shows that you can get up to 27 percent more in defined contribution pension if you choose an offensive saving profile instead of a careful saving profile, if you, like 30 years old, change this today.
Even if you’ve turned 50 and have not as many years left to work as you are at 30, you can earn up to 11 percent more by choosing an offensive profile.
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The table shows, as the image a little above the case, that the shareholding is reduced in the last years before retirement. Downsizing is important to getting a stable and predictable pay that you can live with when you retire.
How to choose correctly
When the panemia corona burst last spring and the stock market crashed, many sold their private equity investments and mutual funds. Then they also failed to notice the rally that occurred after the market started to rally again.
Precisely because there can be such fluctuations in the stock market, your defined contribution pension share must be adjusted downward as you approach retirement age. This is to avoid a big drop just before or when you retire.
– For many, the defined contribution pension represents a large part of the pension, so you should not play with your pension. That’s why you shouldn’t have, for example, 100 percent stock until you retire, Revheim says.
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– How to know which savings profile to choose?
– Make a plan: when do you plan to retire? Then you can use a pension calculator and see what you can expect to get. If you’re under 40 now, you need to be prepared to work through your 70s, and then adjust the weight accordingly, Revheim says.
You can enter and adjust the reduction manually, at any time, to be an age appropriate pension savings based on your needs.
The pension system in Norway
The pension system in Norway
The Norwegian pension system consists of several parts:
- National insurance
- Occupational pension
- Individual pension plans
A person’s pension income can come from one or more of these sources.
National insurance
The retirement pension of the National Insurance Plan is the basic pension plan in Norway. The plan guarantees everyone a minimum pension. In addition, employees are guaranteed a pension proportional to income.
Occupational pension
These are pension plans that have been established for those who participate in working life. For private sector employees, defined contribution pensions are the most common. Here, the law establishes that the employer must save at least two and a maximum of seven percent of the salary between 1 G and 12 G. G is the basic amount in the National Insurance that corresponds to 101,351 crowns as of May 1 2020. The employer can also choose to have additional savings of up to 18.1 percent of salary between 7.1 G and 12 G.
If you work in the public sector, other rules apply. Starting in 2020, new rules were introduced here for those born after 1962, where the old-age pension is earned at a base rate of 5.7% of salary in the income range of 0 to 12 G. There is an additional rate of 18.1% cent for the salary that has between 7, 1 and 12 G.
Individual pension plans
These are pension schemes that the individual himself has established or that have been based on an occupational pension scheme of which the person in question was a member.
Source: Finansportalen.no/ norskpensjon.no
That saves the employer
The defined contribution pension is the dominant pension plan among private sector employees. Here the law states that the employer must save at least two and a maximum of seven percent of the salary between 1 G and 12 G.
G is the basic amount in the National Insurance System, which corresponds to NOK 101,351 as of May 1, 2020. The employer can also choose to have additional savings of up to 18.1 percent of salary between 7.1 G and 12G.
In other words, it is the employer who decides how good the pension arrangement they want for their employees is.
Consumer economist Derya Incedursun recently told Nettavisen that it is a good idea to research what pension plan you will receive, if you start a new job, before signing the employment contract.
– If the employer saves 7 percent, he has a very good pension plan. If the employer saves 2 percent, he simply has too bad a pension arrangement and may lose up to several hundred thousand kronor in pension, he says.
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You can see an overview of your defined contribution pension and what percentage of your salary is saved for retirement at the online bank. You log into the bank where your job saves you a pension, for example DNB or Storebrand, to name the two largest.
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