Norway has been preparing for it’s aging population for decades. As a result, Norway is better placed to cope with population ageing than most other countries, in several respects. “It’s a combination of good management of natural resources coupled with planning ahead,” said Gustavo Toshiaki, an economist and global ageing specialist based in Norway. “They have identified the issues and are dealing with them.”
Almost 25 years ago the government established the Government Pension Fund Global – commonly known as the Oil Fund – which has since grown to become one of the world’s largest sovereign wealth funds. As of the valuation in June 2011, it was the largest pension fund in the world, but it is not a pension fund in the conventional sense as it derives its financial backing from oil profits, not pension contributions. As of June 2017 its total value is NOK8.09 trillion (USD 958 billion).
The purpose of the Government Pension Fund is to facilitate government savings to finance rising public pension expenditures, and support long-term considerations in the spending of government petroleum revenues. A sound long-term management of the Fund contributes to intergenerational equity, by allowing both current and future generations to benefit from the petroleum revenues. Norway’s culture of political trust made it uncontroversial to save as much as possible which allowed the fund to grow faster than anyone had envisaged. A budgetary rule stops the government from drawing down more than the fund’s expected annual returns (set at 4% a year). The capital, in theory, is never touched.
Expectations of the fund may change as Norway itself does. So far Norway has curbed its urge to splurge but in the first half of this year the government for the first time took more from the fund than it deposited from its oil revenues: a net withdrawal of Nkr45 billion. Recent low returns meant that the fund’s capital fell slightly, too. It is too early to see any long-term trend, but some are worried. “It is very hard to have a huge sum of money at the bedside and to tighten your belt at the same time,”
As one of the biggest national investments funds in the world (holding 0.8 percent of global equity markets, with 2.33 percent of European stocks), the GPFG has the potential to make a huge impact on corporate governance markets such as Europe, and China. With huge impact comes huge responsibility, and Norway has acknowledged this responsibility by establishing an ethical council and creating ethical guidelines for the Fund. Politicians, NGOs and others increasingly say moral concerns should outweigh others, and even profits. The fund refuses to invest in firms with products deemed unethical, such as tobacco or many sorts of weapons. It is also becoming more activist in the approach to its portfolio, divesting from those seen as grossly corrupt and flagging concerns over companies’ misuse of water and energy, or any risk that they benefit from child labour. It is also getting more outspoken on subjects like high executive pay. The fund has also been instructed by parliament to help fight climate change. So 1% of its portfolio is in firms deemed to be green. It has divested from heavy polluters, firms involved in deforestation and, this year, from coal companies.
Such restrictions create dilemmas. The fund still invests in oil, for example: Royal Dutch Shell is one of its biggest holdings. Its ethical advisers argue that it can achieve more by promoting good practices within oil firms. But a former adviser admits the fund’s climate-change brief makes such investments a “paradox”. In effect, the fund is exporting Norwegian values as well as capital. In the future it could turn against more products—sugar and fast-food, say, because of obesity. So far the fund’s managers see no serious financial cost from blacklisting 100 or so companies. But they do not deny that some ethical decisions do entail trade-offs. Their own shareholders, the Norwegians themselves, may not always let them do what is right rather than what pays.
Despite this, it is clear that Norway’s Government Pension Fund is more than a national instrument for savings – it represents a nation-wide philosophy to safeguard and build financial wealth for future generations.
What else is Norway doing?
Research from HelpAge International showed that Norway had the highest global level of well-being for people over 60. In 2011 Norway had the fourth-highest employment rate for workers aged 55-64 in the OECD area, at 69.6%. Their Agreement on a More Inclusive Working Life has promoted the inclusion of older people in the work force, and the National Council for Senior Citizens, created in 1970, represents the elderly on a national level.
Norway has introduced better incentives to carry on working. In 2010-11, Norway implemented a pension reform establishing flexible retirement between the ages of 62 and 75, in line with the recommendations of the OECD. The pension benefit is actuarially calculated, with life expectancy adjustment an explicit element. Pension and work income can be combined without any financial restrictions, and employment income for retirees generates additional pension rights. The reason for introducing new regulations in the retirement plans schemes was to be able to maintain a sustainable pension system which would be capable of handling an increase in the number of retired Norwegians/higher life expectancy, while at the same time less children are born. The pension reform is therefore intended to encourage more people to stay for a longer period in the workforce after retirement age.
Finally, the average level of educational attainment among “seniors” (the usual expression for older workers in Norway) is high compared with the OECD average: 27.3% of the age group 55-64 had tertiary-level education in 2010 compared with 22.9% for the OECD area. Norway has a comprehensive system of lifelong learning. The Norwegian Agency for Lifelong Learning (Vox) has a particular responsibility for improving the participation rate in adult learning, specifically in programmes focused on basic skills training at the workplace and beyond. Vox has particular competence in the fields of adults’ legal rights and recognition and validation of prior learning. Vox also works in close co-operation with social partners and NGOs to advance adult learning in working life.
“They are taking a very practical approach to the situation,” said Mr Toshiaki. “Norway doesn’t see older people as a problem.”