Iceland: Financial Sector Assessment Program-Technical Note on Pension Fund Regulation and Supervision

Iceland’s mandatory occupational pension fund sector is large, and risks are mostly borne by pension fund members and beneficiaries. The mandatory part of the second pillar is provided by 21 autonomous pension funds, and the large majority of schemes can be categorized as defined ambition, a regime aimed at fully-funded liabilities where risks are borne collectively by the members. Defined-benefit schemes which cover the public sector were closed for new members already in the late 1990s. While defined-ambition schemes do not guarantee any pre-determined pension payment, the system has a targeted minimum replacement rate of 72 percent—the effective replacement rate, however, is determined by the performance of pension funds. Total assets of the pension fund sector1 amount to almost twice the GDP (176 percent at end-2022), making it one of the worldwide largest.