Twelve pension funds in Iceland have signed an agreement around extending support from the state treasury for housing loans to individuals in Grindavík, the town hit in recent months by devastating volcanic eruptions.
LSR (Lífeyrissjóður starfsmanna ríkisins), Gildi and Festa are among pension funds to have announced the pact, under which the Treasury is undertaking to pay, over a period of six months, the accrued interest and price compensation from mutual fund loans to individuals for their real estate in Grindavík.
“The support is limited to accrued interest and price improvements on mutual fund loans, which amount to a maximum of ISK50m [€336,000] for the maturity date in December 2023, up to and including May 2024,” said Gildi, adding that this was conditional on the property being for the borrower’s own use.
In December, the Icelandic pensions lobby said it would work alongside government and labour market parties to find a loan relief solution for the residents of Grindavik who had at that point been evacuated in the face of an expected volcanic eruption.
Back then, residents had already been given temporary relief from payments and interest on mutual fund loans, according to the Icelandic Pension Fund Association.
The pension sector has been harshly criticised by people from the 3,400-population fishing town in southwest Iceland evacuated in early November, with accusations that the industry’s efforts to give relief from payments and interest on mortgages had been too slow.
People felt banks had been faster to act, but Gildi argued at the time that completely different rules and laws applied to pension funds and that time was needed to ensure any measures taken were legally permitted.
Real returns just 0.5% for Iceland’s pension funds in 2023
Icelandic pension funds have posted average nominal returns of 8.5% in 2023, according to estimates by Landssamtaka lífeyrissjóða, Iceland’s National Association of Pension Funds.
The association noted, however, that since inflation for the year was about 8%, real returns corresponded to 0.5% on average.
Over the last 10 years, the average real return of Icelandic pension funds has been around 4.1% and over five years around 3.8%, which exceeds the 3.5% return standard for the funds’ obligations, the association added.
“The past year was characterised by fluctuations, both in the domestic and foreign financial markets, together with high domestic inflation,” it said.
The association explained that its estimates “take into account the weighted average of the entire portfolio of Icelandic pension funds in 2023, but the final return figures will be published when the funds’ annual accounts for 2023 are available”.
LSR, Iceland’s largest scheme with €8.5bn in total assets according to IPE’s latest Top 1000 Pension Funds 2023 report, has not yet published its latest returns.
The Pension Fund of Commerce (Lífeyrissjóður verzlunarmanna, LV) is the island’s second-largest pension fund with €7.7bn, followed by Gildi with €6.0bn in assets.
Read the digital edition of IPE’s latest magazine