Icelandic Public Pensions: Why time is running out

Abstract

The aim of this paper is to analyse the Icelandic public sector pension system enjoying a third party guarantee. Defined benefit funds fundamentally differ from defined contribution pension funds without a third party guarantee as is the case with the Icelandic general labour market pension funds. We probe the special nature of the public sector pension funds and make a comparison to the defined contribution pension funds of the general labour market. We explore the financial and economic effects of the third party guarantee of the funds, their investment performance and other relevant factors. We seek an answer to the question why time is running out for the country’s largest pension fund that currently faces the prospect of becoming empty by the year 2022.