ICELAND – The head of Iceland’s national pension fund association has denied a report that some Icelandic pension funds will probably fail to meet solvency regulations.

The claim surfaced in an International Monetary Fund report on the Icelandic economy. The IMF said: "Given the industry results, it is likely that a number of pension funds will fail minimum solvency regulations.

“These funds will need to alter their articles of association and increase contribution rates and/or reduce benefits to satisfy solvency margin regulations.”

Hrafn Magnusson, manager of the National Association of Icelandic Pension Funds, said that only four pension funds at the end of 2002 had a difference of more than 10% between assets and liabilities - the insolvency measure – and that they had already cut their benefits.

Eighteen funds, he said, had a difference of between five and 10% for the first time. “If some of these 18 pension funds will in the end of this year have a difference over 10% they must of course make necessary changes, most likely to the benefits.

“But on the other hand Icelandic pension funds have had a very good real return this year, between six and 10%. So it’s very likely that no Icelandic pension fund without employers’ guarantee will have a difference of more than 10% between assets and pension obligations at the end of this year.”

Magnusson said that at the start of 2003 there were 50 pension funds in Iceland. Of these, 11 were closed to contributions and 14 had employer guarantees from the government or municipalities. There were 27 fully operational occupational funds with no employer guarantee.

He added that the ordinary private sector funds are “hard to classify using terms such as defined contribution or defined benefit”.

The IMF had pointed out that there are no guaranteed pension benefits at risk and that pension fund performance did not raise any direct financial stability issues.

Icelandic pension funds can invest up to 50% of their assets in listed equities and up to 50% foreign securities. The IMF said that lengthening life expectancy has meant that extra technical provisions have cut pension funds’ surplus assets.

Icelandic pension funds total 676 crowns (9.4 billion dollars) at the end of 2002, according to the association.