Icelandic pension funds are against being subject to the same rules as banks and insurance firms, due to their “uniqueness” in that they have a social role in society.

These comments were made during a recent panel discussion between Iceland’s Central Bank and several pension funds, which The Icelandic Pension Funds Association (IPFA) detailed on its website.

The panel discussion was in response to a report published by the Central Bank of Iceland in October titled, The activity of pension funds in the financial market and desired reforms in legislation on pension funds, which made a number of recommendations on the future supervision of pension funds and their investments.

In its report, the Central Bank said pension fund legislation was in need of urgent review.

“As appropriate, the law on pension funds should be harmonised with legislation on other entities subject to supervision in the financial market... Certain aspects of the legislation should be adapted to other legislation on regulated financial activities, e.g. banking and insurance activities, which have made significant progress in recent years.

“The funds should also be subject to similar regulations as banks in the real estate loan market. In addition, in the Central Bank's opinion, it is important to legislate in more detail the provisions on the internal control system of pension funds, including governance, key business areas, risk management and outsourcing, which should be consistent with other financial market legislation,” the report stated.

Although the representatives agreed there was a “need to change various things in the law on pension funds”, which was “long overdue”, they rejected the proposal to become subject to the same regulatory framework as other financial entities.

The IPFA wrote: “On the other hand, many things could be mentioned that make it a concern to include pension funds under the same legal and regulatory framework as banks and insurance companies.

“The uniqueness also lies in the fact that the members of the labour market have laid the foundation for the pension system and have a strong voice in it. Pension funds also have a certain social role and in that respect would be incomparable to financial companies and insurance companies.”

Panel participants included Central Bank governor Ásgeir Jónsson, deputy governors, Björk Sigurgísladóttir and Tómas Brynjólfsson, Icelandic Pension Fund managing director, Ólafur Páll Gunnarsson, Gildi Pension Fund director, Rebekka Ólafsdóttir and Birtu Pension Fund managing director, Ólafur Sigurðsson.

The Central Bank’s report noted that the assets of the pension funds have increased approximately tenfold since the turn of the last century and were ISK 7,710bn at the end of 2023 or 184 per cent of GDP.

“They would therefore be sufficient to buy all registered bonds, bills and shares in Iceland, whose market value is around ISK 6,000bn. In terms of total assets, the funds have therefore become larger than the national banking system and the insurance companies combined,” the bank said.

There has also been consolidation in the Icelandic market - in 1980, there were 96 pension funds operating in Iceland, but now there are 21, of which the three largest funds manage about half of the assets and the 15 largest funds manage 97 per cent of the assets.

“Increased consolidation is undeniably accompanied by certain economies of scale, but at the same time certain issues to be resolved, among other things with regard to how pension funds are managed and to what extent they should act as shareholders in companies,” the bank said.

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