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Iceland to cut senior government pensions

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  • Iceland to cut senior government pensions

ICELAND - The Icelandic government has submitted a Bill which proposes to abolish legislation enabling senior civil servants and politicians to receive higher pensions - a move which it claimed would reduce costs by 14% within four years.

The ministry of finance said the proposed change is "in accordance" with the government's statement of policy as it said Act no. 141/2003 provides the president of Iceland, ministers, members of the Althingi - the Icelandic parliament - and justices of the Supreme Court with "more generous" pensions than the general public.

Act no. 141/2003 was established to allow "members of the Althingi and ministers who had been in public life for a long period to retire and thus make room for new public officials", however the legislation "has been subject to much criticism".

To try and address these concerns the pension privileges awarded by the Act were "curtailed" in autumn 2008, but the new government - which was appointed earlier this month - said "it is evident that the Act, as it presently stands, accords pension privileges for senior public servants and politicians well in excess of common pension rights".

Steingrímur Sigfússon, the minister of finance, has now presented a Bill to the Althingi, which proposes "current pension privileges be fully aligned with those enjoyed by other government employees".

The finance ministry said this means Act no. 141/2003 "will be fully abolished", with the exception that it "will continue to apply to the present president of Iceland and those justices of the Supreme Court that were appointed before the entry into force of the Act, as long as they remain on the bench".

In addition, the government admitted "all those who have acquired pension rights under said Act will keep their pension rights", though it pointed out the future acquisition of pension privileges under the Act will cease, therefore reducing future costs to the Treasury.

The finance ministry said 77 employed individuals currently acquire rights under the Act, however 633 members had accrued relevant pension rights at the end of 2007, leading to an estimated cost on the Treasury of more than ISK12bn (€83m).

Under this new Bill, the government said pension privileges already accrued "will remain in effect and the Treasury's resulting payment will be distributed over future years", however it claimed "the main impact of the bill, as it passes into law, is that the acquisition of pension privileges according to the Act will cease and the Treasury will therefore not incur additional commitments".
 
The ministry of finance revealed an actuarial assessment showed once the new Bill is passed the cost to the Treasury will fall by ISK356m from the end of 2007, while after four years the total commitment will fall by ISK1.69bn - equivalent to 14% of the cost in 2007.

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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