new rules for disability pension covered by the employer

28 Feb new rules for disability pension covered by the employer

New legislation for disability benefits paid by the Norwegian national insurance scheme was implemented  January 1st  2015 and the disability pension has now been replaced by a disability benefit. If you are declared to be 100 % disabled, the benefit is calculated to be 66 % of salary, maximum 6 Base amounts. (As per 1.5.2015 NOK 540 408).

Salary is determined to be the best three out of last five years, up to a maximum of 6 G. Disability pension is frequently provided by employers in the market. If an individual retains current benefits from a private disability pension, total disability benefits will exceed 66 % of salaries at the upper level. This will violate the principle of proportionality; hence a proposal for a new legislation has been submitted to the Norwegian parliament. The proposal sets a maximum disability benefit paid by employer as the sum of the following four elements:

  • National insurance scheme
  • A fixed amount equal to 25 % of G (NOK 22 517), maximum level 6 % of salary
  • 3 % of salary up to 12 G (NOK 1 080 816)
  • In addition a benefit of up to 66 % of salary can be provided between 6 G and 12 G

See figure.

All elements accumulated provides a maximum disability benefit between 71 % and 75 % of salary, depending on the salary level. This is higher than the current maximum level of aggregate disability pension, which is 70 %. Higher disability benefits are now allowed due to new tax rules treating disability benefits as ordinary income with higher tax rates.

The new act (Prop-42-L-2014-2015) was passed by the Norwegian parliament April 28th 2015.

The changes will be introduced from 1st  of January 2016 with a 12 month transaction period. Hence, all companies providing disability pension bundled to their company pension will have to align current disability pension to the new legislation by end of 2016.

The new act is applicable for both Defined Benefit and Defined Contribution schemes.

For more information see: https://www.regjeringen.no/nb/dokumenter/Prop-42-L-20142015/id2345624/

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