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Status of pension funds in 2010

29.11.2011

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A report containing information from the annual financial statements of pension funds for the year 2010 is available at the Financial Supervisory Authority‘s (FME) website. There is also an Excel file that contains statistical information from the report. The main results of the report are the following:

The real rate of return is 2.65% above the consumer-price index, as compared to 0.34% in 2009. The five-year average is -1.6%, and the ten-year average is 2.2%. Although still recovering from the banking crisis in 2008, real return is ascending.

Net-real-return-of-pension-funds-in-2000-to-2010
The report shows that net assets for pension payments amounted to almost ISK 1,910 billion at year-end 2010, as compared to ISK 1,775 billion at the same time in 2009. This corresponds to an annual increase of 7.6%, or a positive real return of 5.0% as measured above the consumer price index.

Premiums increased between years from ISK 107 billion in 2009 to ISK 110 billion in 2010. This corresponds to an annual increase of 3%. Pensions with the interim provision regarding disbursement of private pension, in the year 2010 amounted to ISK 71 billion, as compared to ISK 76 billion in 2009.

Private pension savings deposited with pension funds and other depositories amounted to ISK 314 billion at year-end 2010, as compared to ISK 288 billion at the same time in 2009. This corresponds to an annual increase of 9.0%. Private pension savings in total amounted to approximately 15.5% of the total assets of the entire pension system at year-end 2010. Private pension savings premiums increased and totaled ISK 29 billion in 2010, as compared to ISK 27 billion in 2009.

According to Act 129/1997 on the Mandatory Guarantee of Pension Rights and the Operations of Pension Funds, the assets of a pension fund together with the present value of future premiums shall equal the present value of estimated pension payments. All pension funds showing a deficit of 10% or higher, as calculated by annual actuarial surveys, must amend their articles of association in order to achieve a balance. Any fund showing a negative position ranging from 5%-10% for a period of 5 consecutive years must also change its articles of association to regain equilibrium. On 28 December 2010, a transitional provision was extended which authorized pension funds to maintain up to a 15% difference between the assets and present value of estimated pension payments based on actual valuation for the year 2010 without amending their articles of associations. At year-end 2010, the position of 21 non-guaranteed mutual funds out of a total of 24 was negative. The only exemption from this provision is in the case of funds that are guaranteed by the state or municipal authorities. The balance of guaranteed pension funds is similar between years, and almost all of the divisions show a significant deficit.

Actuarial-position-of-non-guaranteed-pension-divisions

Last year a new chapter on pension funds' actuarial positions was added to the report. The chapter is based on data gathered from an actuarial survey conducted in December and includes both the accrued position and future actuarial position of pension funds. In addition is the chapter contains numerical data on premiums and pensions, active members and pensioners.

About 8.9% of pension funds' investments were in non-listed securities at year-end 2010, as compared to 7.4% at the same time in 2009. On 29 December 2008 the permitted maximum investment in unlisted securities was increased from 10% to 20%. Non-listed securities, as defined in Article 36, are securities that do not have a posted buying and selling rate on a regulated market.

Foreign currency exposures totaled 25% at year-end 2010, as compared to 30% at year-end 2009.

The chart below shows the structure of the pension funds' portfolio assets as at 31 December 2010 and 31 December 2009. The columns show that holdings in Treasury notes and bonds have increased significantly while holdings in shares have decreased. The main reason for this is considered to be agreement between the pension funds and the Central Bank of Iceland allowing the pension funds to invest in favorable ISK treasury bonds for Euros. Limited investment options due to currency restrictions, may also contribute to increased treasury note and bond holdings.

Specification-of-investment-31-desember-2010-and-31-desember-2009

The report will only be available on FME‘s website. Material may be reproduced from this publication but an acknowledgement of the source is required.

For further information please send e-mail:  fme@fme.is or telephone: 520-3700

 

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