The ageing challenge in Norway: ensuring a sustainable pension and welfare system

Norway will face a fast maturing old age pension scheme over the 30 next years whereas oil revenues will supply only a part of implicit liabilities related to the present generation. This working paper examines the recently proposed new measures to strengthen long term fiscal sustainability in Norway. Even though a broad agreement was reached in the parliament on the proposed principles of pension reform, crucial elements are still under discussion, among these the decision on a flexible retirement age based on actuarially fair notional accounts and the strength of the link between income and benefits. Estimated savings arising from strengthened work incentives introducing a longevity coefficient and less generous indexation are three percentage points of GDP over the long term compared to an expected nine percentage points of GDP financing gap for welfare spending. For the proposals to have maximum impact, public subsidies to existing early retirement schemes should be removed and eligibility for disability pensions and long-term sick leaves tightened.