Few Expected Such A Large Increase#

Regarding fishing fees, Gunnar points out that pension funds are shareholders in the three fisheries companies that are listed on the stock market. Pension funds are estimated to hold a total of 38 per cent stake in Brim, 11 per cent in Ísfélagið and 24 per cent in Síldarvinnslan.

He refers to a summary by the research firm Jakobsson Capital from April, which states that the increase in fishing fees will lead to a combined valuation of the three companies decreasing by ISK 53 billion, or over 13 per cent.

This has played a major role in the market value of the three companies falling by over 20 per cent this year.

“When the pension funds invested in the three fisheries companies, they must have been aware that fishing fees could increase based on the discussions and manifestos of individual political parties. I think most people expected moderate increases in fishing fees or that major changes would be spread over a long period. However, few or none expected such a large increase in such a short period of time,” says Gunnar.

“The investment assumptions have changed dramatically, and their value and expected future returns have decreased, which has a direct impact on fund members.”

The article points out that the Ministry of Employment estimates that the fishing fee imposed as a result of the planned changes will be around ISK 19.5 billion in 2026, which corresponds to an increase of ISK 8.3 billion or a 74 per cent increase.

Think Twice#

Gunnar says that when the government makes such decisive changes, it must entail a review of the assessment of political risk. Pension fund risk management must anticipate more large-scale changes and define measures to reduce their financial impact.

These can include various measures, such as a review of pension rights and investment policy.

“Then the funds must think twice when discussing cooperation with the government, for example on financing various public projects and infrastructure.”

Pension Funds To Take Over The Role Of Social Security#

Gunnar also criticises the Minister of Finance’s bill on the interaction of disability pension payments, which prohibits pension funds from taking into account disability pension payments from social security. He says that if the bill becomes law, it will abandon the fundamental principle that no one should be better off financially after a loss than before.

“The consequences of this will be that the funds’ disability pension burden will increase, while old-age pension payments will decrease. In fact, the bill involves the main change that the pension funds will take over the role of social security and will become the first pillar of disability pension payments for those with minimum insurance with the pension funds.

The main purpose of pension funds, however, is to receive fund members’ contributions and interest to pay old-age pensions.”

A commentary by Talnakonnur, which is responsible for the actuarial assessment of nine pension funds, on the bill points out that individual pension funds’ old-age pension payments could decrease by up to 5 per cent to 7.5 per cent if the bill is passed.

Gunnar says that it has long been clear that a solution needs to be found to link disability pension payments from social security and pension funds, and that reciprocal cuts cannot work. The government’s initiative for changes is therefore to some extent understandable.

“However, it would have been appropriate and desirable for the changes to have been prepared in consultation with stakeholders and a solution found that does not directly affect pension funds’ old-age pension payments.”

Source: Viðskiptablaðið (in Icelandic)