Pension funds in Iceland are up in arms about a pensions bill they say will drastically reduce pension rights – and could spark lawsuits under the property rights provision of the country’s constitution.
The Icelandic Pension Funds Association (Landssamtök lífeyrissjóða, LL), along with individual pension funds and other stakeholders, has objected on multiple grounds to a draft amendment to the 1997 Pensions Act by the Ministry of Finance and Economic Affairs, which concerns the interaction between social security payments and disability pension payments — two main sources of income for people with disabilities.
The ministry proposed in its 28 May draft that pension funds should no longer be allowed to take social security payments into account when calculating the income reduction of fund members entitled to a disability pension.
Explaining the need for the new clause, the ministry said that taking such payments into account had often led pension funds to cut or even cancel payments to disability pensioners, which in turn had given individuals more social security rights, with the knock-on effect being frequent changes in disability pension payments and uncertainty for pensioners.
LL said in its consultation response: “The bill under discussion here involves a transfer of rights intended for payment of old-age pensions to payment of disability pensions.”
“This will particularly affect fund members in those pension funds where the disability burden has been the heaviest,” the lobby group said.
The transfer of rights that the current bill would lead to entailed a reduction in the acquired property rights of pension fund members, it said, and warned: “If the bill becomes law, it may lead to liability for damages under the property rights provision of Article 72 of the constitution.”
Gildi Pension Fund said in its consultation response that if the bill became law, it would lead to a significant increase in its disability pension payments in the future.
“These funds will not be plucked out of thin air, and the only way for the fund to finance such increased disability payments is to reduce old-age pensions,” the pension fund said, adding: “The bill thus constitutes an intervention in the property rights of fund members.”
According to Gildi’s as well as actuarial estimates, the pension fund said, the new clause in the law would reduce its ability to pay old-age pensions in the future by between 4.8% and 6.7%.
Festa Pension Fund, meanwhile, put the estimated negative impact on its ability to pay old age pensions in the future, as a result of the bill, at 7.5% or more.
“If the government is willing to change, it is necessary to propose appropriate mitigation measures, or other systemic changes, that ensure individual funds and their fund members are not exposed to negative financial consequences,” it said, publishing its own consultation response.
Thórey Thórðardóttir, LL’s chief executive officer, told IPE she assumed that the problematic effects arising from the draft legislation were not intentional on the part of the ministry.
“But the matter requires significantly better sources in order to make informed decisions and to properly assess the potential impacts on society and on pensions for the elderly,” she said.
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