Icelandic pension funds have reacted to a raft of proposed changes to the 1997 Pensions Act – the country’s main pensions law – saying the bill adds too much complexity and that some ideas should be scrapped.

Changes to Iceland’s main pensions law, the 1997 Pensions Act, are based on proposals of a working group appointed back in March 2017, the Ministry of Finance said.

The draft legislation puts into law an increase in the minimum contribution to pension funds to 15.5% from 12%.

It also adds the right for up to 3.5% of the statutory minimum contribution to be used to acquire “specified private assets” – a mutual insurance or private pension fund – with pension fund members being allowed to sell these assets tax-free in order to buy their first home, or a subsequent one if they have been out of the housing market for five years.

Another element of the bill is for the indexation basis of pension payments from pension funds to switch to the previous year’s consumer price index from today’s practice of using current monthly changes in the index to make the calculation.

In a column in Icelandic daily Morgunblaðið, Arnaldur Loftsson, chief executive officer of pension fund Frjálsi, said parliament (Althingi) should reject the provisions in the bill allowing a portion of pension contributions to be invested in specified private assets.

“The allocation of a 3.5% premium in supplementary savings instead of specified private assets, would be better for fund members, but it is not permitted according to the bill,” Loftsson said.

This would be a better idea, he said, partly because there were stricter payout rules regarding specified private assets than for supplementary savings.

The latter allowed to be paid out two years earlier than the minimum age of 62 stipulated for the former, he said.

Another reason why it would be better to allow fund members to put the 3.5% contribution increase into supplementary savings was, according to Loftsson, that this would be a less complex solution.

“Increased complexity makes it difficult for people to understand the pension system, makes it more difficult for fund members to make decisions about the allocation and disbursement of savings, damages the image of the pension system and generally reduces people’s interest in pension savings,” he said in the column.

Meanwhile, in its consultation response, pension fund Almenni said the bill proposed the largest number of amendments to the pensions law since it was originally passed in 1997.

“The law was enacted at the time in a broad consensus of stakeholders and it is the opinion of most that it has generally proved successful.

“The current bill is largely based on proposals and consultation with the social partners related to pension funds that weigh less than 50% of pension funds’ assets,” the fund wrote.

If it was decided that the bill should go ahead, Almenni said, there should be a longer period to adjust to the changes, with the new law taking effect on 1 January 2022 instead of 1 October this year.

The plan to shorten the period in which people contribute to a pension funds, so that it starts at age 18 rather than 16, should be dropped, Almenni said, as should the proposal on specified private assets, with fund members instead being allowed to use the 3.5% extra minimum contribution for  supplementary pension savings.

Looking for IPE’s latest magazine? Read the digital edition here.