Icelandic government plans major cuts to pension fund funding starting next year

The Icelandic government plans to cut funding to pension funds by two-thirds at the start of the new year and eliminate it entirely by the following year. This decision, aimed to alleviate the financial burden of disability claims on these funds, has raised significant concerns among labor unions.

The funding, introduced in connection with wage agreements in 2006, allowed the state to assist pension funds struggling with rising disability-related costs. Union leaders fear that this cut will disproportionately impact workers and low-income earners, jeopardizing their pension rights. They predict that the changes could reduce pension entitlements for workers by nearly four percent.

In the parliament’s discussion surrounding the budget proposal, Kristrún Frostadóttir, the chair of the Social Democratic Alliance, emphasized that the state’s financial support was intended to shield general fund members — especially in sectors with high disability prevalence — from unfavorable pension implications. Now, with the funding’s reduction framed as a necessary economic measure, she questions the government’s approach to compensating for the costs linked to the new disability pension system by drawing from the pensions of the nation’s poorest citizens.

In response, Finance Minister Sigurður Ingi Jóhannsson highlighted the changing economic landscape, asserting that pension fund assets have increased significantly since the original agreements were made. He pointed out that the current allocation sees only 40% reaching funds facing increased burdens, with the rest going to less affected funds. He also noted ongoing discussions aimed at revising the disability pension system scheduled for next year.

The labor union’s central committee has urged the government to reconsider its plans, calling the approach an affront to working people and low-income earners across the country.