ICELAND - Iceland's pension funds will not transfer any of their foreign securities back to Iceland as the deteriorating economy is dragging down pension fund assets, IPE has learnt.

Hrafn Magnússon, director of the Icelandic Pension Funds Association (IPFA), told IPE: "All discussion with government to transfer 50% of foreign assets from pension funds has been postponed."

He added: "Icelandic pension funds are not going to transfer foreign assets to Iceland - there is no 'fire sale'."

In an emergency meeting of the board and the reserve board of the Icelandic Pension Funds Association (IPFA) last night, it was resolved an agreement would be postponed as Iceland's economy was deteriorating further despite the emergency laws enacted by Iceland's Althingi Parliament.

"New information came to light regarding the situation over the course of the weekend, calling for even more widespread and serious reactions on behalf of the government than previously believed necessary," the IPFA said in a statement last night.

The association has stressed it will encourage the boards and managers of the Icelandic pension funds to meet the needs of borrowers, as much as the situation can allow for at each given point in time.

The IPFA has also warned there is likely to be a decrease in pension benefits paid which will come to pass early next year.

"The financial situation in markets all over the world and the emergency laws set by the Icelandic parliament will affect the pension funds, as well as all homes and businesses in the country. It is clear that the assets of the pension funds will diminish accordingly," concluded the organisation.

The news comes as the Central Bank of Sweden has granted Kaupthing, Iceland's largest bank, a SEK5bn (€514m) loan, to ensure the bank can live up to its commitments towards the customers of Kaupthing's Swedish branch.

Trading in Kaupthing was halted on the Nasdaq-OMX after it shares plunged 34% within the first 30 minutes of morning trading.

The Icelandic Financial Supervisory Authority (FME) took over the board of second largest lender Landsbanki Bank yesterday morning and the government scrapped plans to nationalize Glitnir Bank hf, the country's third-largest lender, putting the company into receivership under the control of the state regulator.

In a separate development, the UK government declared this morning it plans to sue Iceland over lost deposits held by thousands of Britons with Icelandic bank accounts.

If you have any comments you would like to add to this or any other story, contact Carolyn Bandel on +44 (0)20 7261 4622 or email carolyn.bandel@ipe.com