Returns at Iceland’s pension funds dwindled in 2025 to around a third of the level seen the year before in real terms, with inflation remaining above the central bank’s target and the domestic stock market failing to make headway.
The Icelandic Pension Funds Association (Landssamtök lífeyrissjóða, LL) reported that, according to preliminary figures, real returns from both collective insurance and private savings at the country’s pension funds were 2.6% for 2025. This compares to the 6.5% industry average real return LL reported for 2024.
The estimate was based on a weighted average of the entire portfolio of Icelandic pension funds, and final figures would be published when the funds’ annual accounts are available later this year, it said.
“The average real return for the last ten years is around 4.0% and for the last five years around 2.8%,” LL noted.
Inflation in Iceland is running at almost twice the central bank’s target, with the CPI up 4.49% year-on-year in December compared to the 2.5% target, according to central bank data.
Though Icelandic pension funds have disclosed their 2025 returns figures to LL, most will only go public with them alongside the release of their annual report in the next couple of months.
However, Frjálsi pension fund stated in January that on its private savings side, returns for investment options with a high proportion of bonds had returned the most during last year – with nominal returns ranging from 5.8% to 8.6%, yielding real returns of between 2.0% and 4.7%.
Its collective insurance product returned 6.6% in nominal terms and 2.2% in real terms in 2025, it stated.
“Market conditions in recent years highlight the importance of having a diversified portfolio in order to withstand market fluctuations,” said Frjálsi, adding that the Iceland Stock Exchange’s benchmark index showed little change year-on-year overall in 2025.
“Despite this, the year was characterised by considerable volatility, with the index falling considerably in April following Donald Trump’s tariff policies,” the pension fund said.
Without giving figures, Halla Kristjánsdóttir, chief investment officer of Iceland’s largest pension fund, LSR, told IPE that the public-sector pension fund’s returns from its international equity portfolio had been strong in 2025.
“However, the weakening of the US dollar reduced the returns when measured in Icelandic króna,” she said.
“At the same time, domestic bonds delivered solid yields and contributed positively to overall performance,” Kristjánsdóttir added.
LSR is planning to release its 2025 results for 2025 at the beginning of April.
