Iceland’s pension industry will, in time, have to recalculate liabilities and in some cases decrease expected pensions as a result of a new life expectancy table – using a new methodology – which projects a continued increase in longevity in the future, according to an expert at one of the country’s pension funds.
The industry is now focusing keenly on informing the public about the changes, she said, but given the robustness of the pension system, she said funds should not find it hard to make those changes.
In June, the Association of Icelandic Actuaries (FÍT) recommended to the Ministry of Finance and Economic Affairs that the changed calculation basis for its new forecast of long-term rising life expectancy in Iceland be part of the standard assumptions for actuarial studies for the year 2021.
It also recommended that pension funds make a change in the reference age of pension rights in accordance with the FÍT forecast model and the new life expectancy table that the association had presented.
Ragnheiður Helga Haraldsdóttir, risk management specialist at Brú Pension Fund, told IPE: “The new life expectancy table is based on a new or rather a different methodology to calculate life expectancy. No decision has been made regarding the next update but we expect that to happen in a few years.”
So far, no action from the government had yet been approved regarding this, she said, but added that the industry expected to hear news about that in the near future.
Iceland is holding a general election this Saturday.
Haraldsdóttir said the new life expectancy tables were constructed on the basis of two factors – first the mortality and longevity for different groups in the last four years, and secondly, the trend in the last 20 years regarding changes in mortality and longevity.
“Based on these two factors the model projects a continued increase in longevity in the future which is a change from the current methodology,” she said.
As a result of this, the pension industry would have to recalculate its liabilities, she said, and in some cases decrease expected pensions for future retirement obligations.
But Haraldsdóttir said the pension age in Iceland was already quite flexible from age 65, she said, and was not expected to change.
“The pension system in Iceland is robust and therefore we do not expect any great difficulties in making the necessary adjustments,” she said.
“At the same time we are very focused on introducing the changes properly to the public,” said Haraldsdóttir.