Iceland needs independent review of disability spending

Iceland needs an independent review of spending on disability benefits, as the number of recipients and the cost of the system continue to rise, mbl.is reports.

An OECD report on Iceland’s economy in 2025 said the share of disability benefit recipients among people aged 20 to 64 was one of the highest among the organisation’s 38 member countries. From 2007 to 2018, the rate fell in Sweden from nearly 12 per cent to just over 6 per cent, while it rose in Iceland from just under 8 per cent to almost 10 per cent. The number of Icelanders in that age group grew from 184,000 to 205,000 over the same period.

Rates also fell substantially in Denmark and Finland, while Norway’s remained unchanged, though higher than Iceland’s. The OECD said reforms to the design and administration of disability systems were the main reason for the reductions in Sweden, Denmark and Finland.

The organisation also identified shortcomings in changes Icelandic authorities introduced to the disability system in autumn 2025. It said rules on sickness benefits had not been aligned with the new rehabilitation and disability pension system, creating undesirable incentives and increasing overall costs. The OECD also warned that entitlement to sickness and rehabilitation pensions for up to seven years, followed by the possibility of partial or permanent disability pensions, gives people little incentive to return to work, as international research has shown.

Recent parliamentary replies from the minister of social affairs and housing, responding to questions from Nanna Margrét Gunnlaugsdóttir of the Centre Party and Guðlaugur Þór Þórðarson of the Independence Party, detailed changes in recipient numbers, their origins and the system’s total cost. The figures, the article says, underline the need for reform to ensure the system’s long-term financial sustainability.

Disability costs are rising rapidly

The reply to Gunnlaugsdóttir said the number of people receiving disability-related payments rose from 18,510 in 2010 to 30,193 in 2025, an increase of 63 per cent, or average annual growth of 3.3 per cent. Statistics Iceland recorded nearly 193,000 people aged 20 to 64 in work in Iceland at the end of last year. Recipients therefore amounted to about 16 per cent of that number, or roughly one person receiving disability benefits for every six people in work.

Government payments for disability-related benefits totalled about 113 billion krónur in 2025. Of that, around 17 billion went to nearly 4,600 residents of foreign origin. Almost 1,700 people of foreign origin received monthly payments of between 400,000 and 600,000 krónur from the State Social Security Institute, while eight received more than one million krónur during the year.

The 2026 budget allocates about 136 billion krónur to disability-related matters under budget items 27.10 and 27.20, an increase of 23 billion, or 20 per cent, from the previous year. The 2027 budget proposal puts the allocation at more than 148 billion krónur. That would represent an increase of 35 billion, or nearly 31 per cent, over two years. If residents of foreign origin continue to account for about 15 per cent of disability-related payments, their share in 2027 could be around 22 billion krónur.

Mental health conditions are the leading cause

The reply to Guðlaugur Þórðarson said mental health conditions were the largest cause of disability in Iceland. They accounted for 49 per cent of recipients of sickness and rehabilitation pensions and 41 per cent of people receiving disability or partial disability pensions, with an overall average of 43 per cent. Among people under 24, mental health conditions were the cause in more than 70 per cent of cases.

The article also noted that disability rates among people from some countries were exceptionally high.