Leading the way
Written by Francesca Fabrizi
June/July 2014
Please outline the current make-up of the Almenni pension fund and its history.
Almenni Pension Fund is an open pension fund, but also serves as the occupational pension fund for architects, doctors, musicians, technicians and travel guides. Almenni Pension Fund is suitable for individuals who have the option of selecting their own pension fund and/or are willing to pay a supplementary premium to increase their spending power when they retire.
Almenni members can pay both minimum premiums (required by law) and supplementary (voluntary) premiums. Minimum premium (12 per cent of total salaries) is divided between the defined benefit plan (8 per cent of salaries) and the defined contribution plan (4 per cent of salaries), but supplementary premiums are paid into the defined contribution plan.
Fund members can choose between six predesigned portfolios for supplementary premiums. Members can select portfolio according to their age or the risk they are willing to take. Furthermore, members can select the ‘lifetime track’, in which the holdings are transferred between the ‘life portfolios’ in accordance with each member’s age.
Please could you explain your role at the fund – your aims and objectives?
My aims and objectives are to offer a pension fund with favourable pension rights in the form of lifelong annuities, disability and spouse’s pension and a private pension fund that inherits at death. I want to offer members a choice for their private pensions between different portfolios based on expected saving time and risk tolerance and to provide clear information on pension rights and investment portfolios to assist members to make informed decisions about their pension savings and payments. I also want to keep costs as low as possible.
Almenni has performed well in the past three years – how has this been achieved?
Good performance is largely due to good returns on foreign assets (listed stocks and private equity funds) and also partly due to price increases in domestic equity (a small but growing part). Furthermore, the fund has benefited from settlements with some issuers in financial restructuring, including a deal with Glitnir Bank 2012. The return on domestic bonds has also been good, especially in the years 2009 - 2011.
Almenni prides itself on its strong member communication – can you explain why?
From the beginning Almenni has emphasised transparency of information. All relevant information about the fund, its investments, portfolios and status are available to members in the best format possible at each time.
As such, members of Almenni Pension Fund receive an overview of their pension status twice a year on paper statements, along with a newsletter. Since 1998 the fund has offered live information on the website www.almenni.is about holdings and earned pension entitlements. Fund members can enter a locked website to follow the status of their pension and portfolios. Information on the NAV of the portfolios is updated daily on the website.
The pension fund also publishes monthly information sheets with key numbers for the fund in total and for each investment portfolio. On these sheets members can read facts about past performance and current asset allocation (geographical and sector allocation, asset classes and 10 largest issuers). It also publishes at least twice a year a list with the name and holdings of all issuers with in each portfolio.
The year 2012 was the first full year Almenni has held what has been called ‘status meetings’ for members. The meetings are held individually and provide the members with a comprehensive overview of their pension situation. In the meeting members are provided with information of their savings up to this point and the pension that the current rate is likely to bring. Important questions about the pension situation are raised and advice given about if and how the savings rate or risk portfolio should be changed.
In 2013 the website www.almenni.is was updated with the intent to improve the communication even further. Among new tools used in the communication is the ‘lifetime track tool’, where members can see what portfolio Almenni recommends according to age. The ‘pensions minute videos’ are another example of how we are trying to make pension matters accessible to busy people in the modern age.
How does the fund address risk?
The annual review of investment policy takes into account the actuarial status of the defined benefit pension plan and expected premiums and pensions. The fund has implemented a risk management system based on monitoring key risks on a regular basis. The risks are divided into four main categories and 29 subcategories. Examples of risks that are monitored regularly are interest risk, market risk, currency risk, repayment risk, inflation risk and risks associated with assets off balance sheet. The fund has designed a control system where all major risks are listed and there are defined control measures to monitor them. Results of monitoring activities are reported monthly and are submitted to the board.
Each report consists of a list of all monitoring activities for a relevant period and reactions to deviations from risk policies, if any.
What are the biggest challenges facing the fund in the coming years?
The biggest challenge facing Almenni Pension Fund on the asset side is to manage assets in a closed economy with capital controls. On the service side the main challenge is to continue to strive to provide excellent information to members and excellent service at minimum cost.
Going forward, what are the biggest challenges facing pension funds in Iceland?
The biggest threat facing Icelandic pension funds are the capital controls that were imposed after the financial crisis 2008. The biggest challenge facing Icelandic pension funds is to get permission to invest abroad within the controls and to fight for their abolition in the long run. While capital controls are in place pension funds and other investors cannot diversify by investing in other economies. In the long run the consequence will be lower return and more volatility. Therefore we believe it is vital to strengthen the competitiveness of the Icelandic economy to stimulate foreign investment, both to increase productivity but also create capital inflows that might open the way for the pension funds to invest abroad.
