Business Council urges Iceland to cut mandatory pension savings

Iceland’s Business Council says mandatory pension contributions could be reduced from 15.5% to 12% of wages, mbl.is reports.

The council also says wages above a certain level should be exempt from mandatory contributions once workers have accumulated enough savings to ensure an acceptable standard of living in retirement.

In an analysis of Iceland’s pension system, the council notes that no other OECD country has an equally high mandatory savings requirement. Birta Karen Tryggvadóttir, an economist at the council, said the contributions could place a significant burden on young people during the most expensive period of their lives, when they are establishing homes and raising children.

She pointed to Switzerland, where mandatory savings rules take age into account and allow younger people to contribute less.

The council’s analysis also says that Icelandic workers who pay mandatory pension contributions throughout their careers and make additional voluntary contributions may be saving so much each month that their pension income could eventually exceed any salary they received during their working lives.

The council further criticises the limited use of direct elections for pension fund board members and warns that conflicts arising from representation could contribute to weaker investment returns.

It also says greater investment abroad would improve diversification. Foreign assets currently make up about 40% of Icelandic pension funds’ portfolios, compared with 88% in the Netherlands.