in the Icelandic Pension Market Bjrn Z. sgrmsson - Risk & - PowerPoint PPT Presentation

Supervisory Challenges in the Icelandic Pension Market Björn Z. Ásgrímsson - Risk & pension analyst Financial Supervisory Authority, Iceland

Pension funds assets as % of GDP Pillar II - autonomous private pension 126% Pillar III - autonomous personal pension 14% Pillar III - other personal pension 8% Total 148%

Pension funds assets year 2013 3.000 Pillar II 2.500 2.000 billion ISK 1.500 2.400 1.000 Pillar III 500 261 160 0 Autonomous private pension Autonomous personal pension Other personal pension

Supervised entities assets year 2013 3.500 3.000 2.500 billion ISK 2.000 1.500 1.000 500 0 Banks Pension funds Mutual & investm. Alt. Investm. funds Insurance comp. funds

Pillar II pension fund assets close to 130% of GDP DB funds 27% DC funds 73%

Pension funds in a closed economy

Pillar II pension funds asset allocation Other bonds Deposits 4% 5% Shares 27% Government bonds 41% Mutual funds 8% Colleteral Bonds by bonds Bonds by banks municipalities 8% 1% 6%

High exposure on bonds guaranteed by the government Bonds guarantied by Governm. & Other assets Municipal. 54% 47% 2/3 are bonds issued by the Housing Financing Fund

Major trends in 2013 Unlisted domestic shares 100 billion ISK 30% 80 60 40 20 0 Listed domestic shares 2012 2013 200 billion ISK 80% 150 100 50 0 2012 2013

Elephant in the room Deficit

Accrued actuarial deficit (close to 32% of GDP) DC funds 14% DB funds 86%

Pension benefits • Autonomus pension funds (Pillar II) are the main providers of pension benefits, offering:  Old age pension  Disability pension  Pension to surviving spouse  Pension to surviving children

Pension payments 2012 billion ISK PAYG state pension - Pillar I 58 Pension funds - Pillar II 74 Pension funds - Pillar III 10 Depositor - Pillar III 12 Total pension excl. PAYG 96

Public and private expenditure (%/GDP) on pensions in selected OECD countries, 2011 16 14 12 10 8 Private 6 Public 4 2 0

Future challenges • The size of the pension system • Captial control/closed economy • Sovereign risk • Increased systemic risk • Retirement saving adequacy • Sustainability

Elephants in the room