Concerns rise over pension savings management in Iceland amidst financial struggles
Concerns are rising over the inability for Icelanders to manage their personal pension savings amid increasing household financial troubles. Már Wolfgang Mixa, an associate professor of finance at the University of Iceland, questions the government’s decision to prevent individuals from utilizing their pension savings for mortgage payments when they claim to be assisting struggling households.
The new budget proposal for 2025, presented recently, indicates that the option to apply pension savings towards housing loans will only be allowed for first-time home buyers. Mixa finds it contradictory that while the government intends to support households, they simultaneously hinder individuals’ control over their savings.
He advocates for automatic provisions in salary agreements that would enable people to accumulate pension savings while allowing them to decide how to allocate these funds, either for mortgage repayments or first-time purchases. Mixa believes that removing this option from individuals merely adds to their financial burden.
The impact of this restriction has been significant, with around 22 billion Icelandic krónur being transferred annually from pension savings to property investments. Mixa points out that without allowing tax-free contributions towards loans, the principal on existing debts will remain high, complicating matters further as many are shifting to index-linked loans.
In related news, Arion Bank announced an increase in lending rates, effective today. They report that variable housing loan interest rates will rise by 0.60 percent to 4.64 percent, while fixed rates will increase by 0.50 percent to 4.74 percent. This marks a 12 to 15 percent rise in borrowing costs, contributing to a heavier financial load for borrowers. Mixa believes more options should be provided to allow for additional payment towards housing loans, which could alleviate some financial stress, particularly for those who need it most.