The new fund should reflect developments in both petroleum revenues and pension obligations, rather than being based solely on actuarial considerations, the panel recommended. The commission proposed setting long-term fiscal policy guidelines so that the proportion of unfunded pension debt remains stable in years to come. If the guidelines weren't met, under the proposal, the government would have to take special budgetary measures to restore the balance. "Before, there was no connection between the fund(s) and pension debts at all," said Bjorn Halvorsen, director, Ministry of Social Affairs.
Rather than establish a new fund management organization, the existing dual structure would be maintained in the new fund. The National Insurance Fund's remit is to invest domestically, while the Petroleum Fund, under the auspices of the central bank, invests all of its assets abroad.
"We don't think this will change the way we manage investments. The two parts of the fund will be managed separately in the same way as today," said Knut Kjaer, executive director, Norges Bank, Oslo. The petroleum fund now has 50 different mandates with 30 international managers, he said.
"We are not proposing any change in the rules of distribution or allocation," Mr. Johnsen said. "It's more a change of perception." However the report does call for more detailed rules on asset allocation between domestic and overseas investments, taking monetary policy into account.
"The idea is that it should be one fund, but the investment mix will look the same as in the single funds," said Jimmy Johansen, consultant at Mercer Investment Consulting, Oslo. The fund would benefit from combining expertise from the two different units, he said.
The fund's larger size could also provide more clout in the marketplace. "The Petroleum Fund has the power to negotiate the best deal in the market, but the merged fund could have even better negotiating power," Mr. Johansen said.
And, while the fund could be expected to continue to be free in its choice of investments, Mr. Johansen said there was likely to be greater demand for ethical investments.
Although the National Insurance Fund would continue to be financed on a pay-as-you-go basis, the commission discussed introducing a defined contribution element, but this was not approved by a majority.
Because oil revenue could only cover a small share of the anticipated increase in pension payments, the report also recommended financial incentives to defer retirement until the age of 70. Under the current system, the standard retirement age is 67. The new proposals also would allow anyone to take a much-reduced pension at the age of 62.