​Icelandic pension fund returns far exceed benchmark for 3rd consecutive year | News

Iceland’s pension fund lobby group said it estimated the country’s pension funds returned 10.2% in 2021, which “far exceeds” their benchmark return of 3.5% for the third consecutive year.

The Icelandic Association of Pension Funds (Landssamtök lífeyrissjóða, LL) also pointed out that foreign allocations in the mutual insurance divisions of some funds had reached 45% and pension fund mortgages now amounted to around 7.5 % of fund assets.

The association said in a statement: “The good returns of recent years mean that many funds are now in a strong position to implement modified life tables without the update causing changes in the current rights of fund members.”

Icelandic pension funds now have a two-year period to implement the forecasts in the new life expectancy tables published by the Icelandic Ministry of Finance and Economic Affairs, which assume a continuous increase in the duration of life, said LL.

The association said its return estimate of 10.2% was based on the weighted average return of all of the funds’ portfolios, but added that final return figures would be released when the funds publish their annual reports for 2021.

“It is clearly not possible to assume that the ongoing return will be so high, but what is more important is that the long-term average return meets expectations,” the association said.

The pressure group also announced that the share of foreign assets in pension funds was more than 35% at the end of November, and within the mutualist poles of certain funds, this allocation was close to 45% – a ratio which is mostly applied to funds with groups of younger fund members, he said.

LL warned that there was a risk that current legislation could have a chilling effect on the investment policy of these funds, and that there had been discussions about increasing the investment authorization in foreign assets for this reason, which currently stipulated that currency risk could not exceed 50% of total assets.

“An analysis of the situation is underway, and it is expected that this work will proceed quickly and safely and lead to increased funding of foreign investment by the funds,” said the Reykjavik-based industry body. .

He also said the proportion of mortgages provided by pension funds to scheme members was leveling off, after a large shift from pension funds to banks the previous year.

Within mortgages, non-indexed loans continued to grow, but indexed mortgages still made up the majority of this 7.5% of fund assets, corresponding to almost ISK 500 billion (3.42 billion euros), said LL.

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Dolores W. Simon