ICELAND - Iceland's pension funds, which hold the bonds behind most of the country's mortgage debt, will try to block proposals to forgive as much as $2bn in bad loans that the government says it is considering.
A group that represents households demanding debt relief says lenders should write off up to ISK220bn ($1.99bn) in mortgage loans to help the 39% of homeowners who are technically insolvent. The government this week said it may back the proposal as it responds to protests that drew bigger crowds than in the weeks before former Prime Minister Geir H. Haarde's administration was ousted in January 2009.
"We don't support the ideas of the Interest Group of the Homes on general write-offs on loans," said Hrafn Magnusson, managing director of the Icelandic Pension Funds Association, which has assets of ISK1.8trn, in an interview yesterday. "The measure would mean that members will see their pensions cut."
Prime Minister Johanna Sigurdardottir's assurances after the October 4 protests that home owners will get swift debt relief may leave the state more indebted and breach a clause in the island's loan agreement with the International Monetary Fund. The government has yet to discuss the proposals with the IMF, Finance Minister Steingrimur J. Sigfusson said in an interview.
Failure to secure backing from the country's pension funds would jeopardize any government plans to grant a general write- down of mortgage debt, Morgunbladid cited Sigurdardottir as saying today. Any agreement would require losses to be divided between the pension funds, the banks and the Treasury, she said, according to the newspaper.
Iceland, which is ranked "junk" at Fitch Ratings, also risks putting its credit grade under further pressure if it agrees to measures that add to Treasury debt.
"I think the government is very aware that its option to pick up the bill again is limited," said Moody's Investors Service analyst Kathrin Muehlbronner, in an interview. "Iceland's current position has more downsides than upsides."
Moody's ranks Iceland's foreign debt Baa3, the lowest investment grade. The rating carries a negative outlook. Standard & Poor's also ranks the island one level above junk at BBB-.
Kim Gubler says it is time that schemes and administrators reassess SLAs and look at what real people need from their pension schemes and when
The Pensions Regulator (TPR) is focusing on reducing the number of "poorly-run" schemes as it seeks to improve standards across the board.
Prudential Retirement has completed around $2.6bn (£2bn) of reinsurance contracts for UK pension scheme longevity risk since the start of the year, it has disclosed.
Funding standards for DB schemes have increased exponentially over the past decades. Con Keating says such significant overstatement of liabilities will lead to pushback through the courts.