Labour market partners propose fund to reduce inequality in disability benefits

Labour market partners in Iceland are proposing a disability benefits fund that they say could reduce long-standing inequalities and simplify the social security system, mbl.is reported.

Bjarni Benediktsson, director of the Confederation of Icelandic Enterprise, presented the proposal at a symposium this week marking the 90th anniversary of Iceland’s Social Insurance Administration. Representatives of employers and workers’ organisations took part in the event.

The partners have discussed possible changes over the past year. Under the proposal, people would generally qualify for payments from the fund after two consecutive years in the labour market. Those who lose their ability to work before qualifying would remain covered by social security.

The fund could take over pension funds’ disability obligations and social security payments for disability and rehabilitation. It would operate on a pay-as-you-go basis, have no state guarantee and be governed by labour market partners. Funding would come from a separate contribution estimated at 4 to 4.5 per cent of wages, offset by lower contributions to pension funds and a reduction in the payroll tax.

Pension funds would also provide the fund with a substantial reserve to help it manage unexpected changes in income and spending. The proposal says the aim is to shift responsibility and funding without increasing the overall cost of disability insurance.

Payments would provide everyone with a reasonable basic income in line with minimum social security benefits, while also reflecting previous earnings and contributions. Entitlement would continue until retirement age, when old-age pension payments from social security and pension funds would take over.

Benediktsson said the burden of disability varies considerably between pension funds. Because disability and old-age pension cover are linked, he said, this leads to unequal pension accrual among occupational groups. A state equalisation contribution was intended to address the differences, but its results have been mixed.

He also said the cost of illness and disability in Iceland had risen quickly in recent years, partly because many people had started receiving rehabilitation pensions. Iceland lagged neighbouring countries in rehabilitation rates, he said, while benefit replacement rates had become very high. He said a dedicated fund was the best way to even out differences and reduce the number of new disability cases.