Iceland’s pension fund lobby group said it estimated the country’s pension funds returned 10.2% in 2021, which “far exceeds” their 3.5% return benchmark for the third year in a row.
The Icelandic Pension Fund Association (Landssamtök lífeyrissjóða, LL) also highlighted that foreign allocations in the mutual insurance divisions of some funds had reached 45%, and that pension fund mortgages now made up around 7.5% of funds’ assets.
The association said in a statement: “Good returns in recent years have meant that many funds are now in a strong position to implement changed life expectancy tables without the update leading to changes in the current rights of fund members.”
Icelandic pension funds now have a two-year period in which to implement predictions in new life expectancy tables published by Iceland’s Ministry of Finance and Economic Affairs, which assume a continued increase in lifespans, LL said.
The association said its 10.2% return estimate was based on the weighted average return on the funds’ entire portfolios, but added that the final return figures would be published when the funds’ released their annual reports for 2021.
“It is clear that it is not possible to assume that the continued return will be as high, but the most important thing is that the average long-term return meets expectations,” the association said.
The lobby group also announced that the proportion of foreign assets of pension funds was over 35% at the end of November, and within the mutual insurance divisions of some funds, this allocation was close to 45% – a ratio that mostly applied to funds with younger fund member groups, it said.
LL warned there was a risk that current legislation could have an inhibiting effect on the investment policy of these funds, and that there had been discussions about increasing authorisation for foreign asset investment for this reason, which currently stated that currency risk could not exceed 50% of total assets.
“An analysis of the situation is now being carried out, and it is expected that this work will proceed quickly and safely and lead to increased funding for foreign investment by the funds,” the Reykjavik-based industry body said.
It also said the proportion of mortgages being provided by pension funds to scheme members was evening out, after a large movement from pension funds to banks the year before.
Within mortgages, non-indexed loans continued to grow, but indexed mortgages still constituted the majority of this 7.5% slice of funds’ assets, corresponding to almost ISK500bn (€3.42bn), said LL.