ICELAND - The Icelandic Pension Funds Association (IPFA) has agreed to encourage its members to sell up to 50% of their foreign securities and injecting the capital  back into the Icelandic currency market.

Hrafn Magnússon, director of the IPFA, said in a statement today the association had agreed to the measure on Saturday, after Geir Haarde, Iceland's prime minister announced the country would hammer out a financial package to shore up its troubled banking sector.
 
The country's largest banks have already agreed to repatriate some of their foreign assets, in a deal that is intended to prevent the Icelandic currency, the króna, from sliding further after it lost a fifth of its value against the dollar.

Total assets of the Icelandic pension funds amount to ISK1.800bn (€11.6bn), with around ISK500bn in foreign securities.

The assets of the pension funds within the IPFA amount to approximately 99.5% of total pension fund assets in Iceland.

"The pension funds are expected to invest in Icelandic bonds, guaranteed by the government, for the amount formerly invested in foreign securities," read the statement.

According to Magnússon, the transfer of capital will strengthen the króna, and the Icelandic currency market, benefiting pension funds when the Icelandic economic and financial life return to normal.

"Therefore, the funds have decided to seriously consider the Icelandic government's action plan, intended to strengthen the króna, as it is also clear that the government will guarantee the disbursement of the capital the pension funds might move back into the Icelandic financial system in the coming weeks and months," he said.

According to the Pension Markets in Focus, published by the Organisation for Economic Co-Operation and Development (OECD), the assets of the Icelandic pension funds are the highest in the world, in proportion to gross domestic product (GDP).

At the end of 2006, the pension savings in all of the OECD countries averaged around 72,5% of their GDP. Iceland was at the top of the list with pension savings amounting to 133% of its GDP, followed by the Netherlands with 130% and Switzerland in third place with 122%.

It is understood Iceland's banks hold overseas assets worth nine times the country's GDP.

If you have any comments you would like to add to this or any other story, contact Carolyn Bandel on +44 (0)20 7261 4622 or email carolyn.bandel@ipe.com

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