ICELAND - The real returns of Icelandic pension funds are expected to be as low as 0% to 1% for 2007 because of poor performing domestic equities, but experts remain unconcerned about the long term health of the funds.
Magnœsson said: "If the real return is 0% for 2007, the five-year average return will be higher [at] around 8.9%."
Following the Icelandic Pension Act of 1997, if the difference between pension fund assets and obligations is greater than 10%, or exceeds 5% for five consecutive years, funds must amend their strategies.
Nonetheless, Magnœsson did not feel it would come to this. "I don't suppose that any Icelandic pension funds will have deficits higher than 10% this year," he predicted.
In the four years prior to 2007, many Icelandic pension funds were able to pay in bonuses due to excellent real returns. However, Magnœsson noted this was unlikely to be the case in 2007.
"Because the real return last year will be much lower than the average [seen in] 2002-06, my opinion is that the Icelandic pension funds will not pay an extra bonus this year, as they have done in the last [few] years," he said.
In the most recent figures, published earlier this month by the Central Bank of Iceland, pension fund net assets amounted to ISK1.646trn (US$25.3bn) at the end of November 2007, having increased by ISK32.9bn (2%) over that month.
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