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Iceland funds exit fixed income – supervisor

ICELAND – Pension funds in Iceland have cut their allocation to fixed income to 44% from 69% six years ago, the Financial Supervisory Authority says.

“The composition of pension funds’ assets has changed markedly in recent years,” the authority, known as the FME, stated in its 2003 report published today.

“This comparison between 1997 and 2003 indicates that variable-yield securities now comprise a larger share of the funds' assets than previously.

“During this period, the share of variable yield securities has grown from 15% to 40% of the funds’ net assets, with a corresponding drop in fixed income securities.” The FME said variable-yield securities include equities and UCITS, which may comprise fixed income.

The funds’ net assets rose 18.2% to 824 billion crowns at the end of 2003. The FME said: “At year-end 2003, the net assets of pension funds were equivalent to 104% of GDP, as compared to 87.1% at year-end 2002.”

The real rate of return was 11.3% following three years of negative returns, the supervisor added.

“The funds’ good results in 2003 meant an improvement to their actuarial status and all pension funds were in actuarial balance, as defined in the Pension Funds Act.”

But it said that despite the improved situation funds were “unlikely to increase members' rights in the near term”. It said it was necessary to take a long-term perspective, and consider both rising life expectancy as well as the “increasing incidence of disability”.

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