Daily Archives: November 11, 2015

Pension funds in Iceland

Pension funds in Iceland!

Step two, what’s wrong now and how can we fix it.

The pension funds in Iceland are mandatory for working class people to pay 12% of what they earn into a pension fund. Iceland has a few pension funds available and you can choose which fund you join, but it is mandatory to be a part of one. A Pension fund is a fund that is supposed to insure the aging population a safe future after retiring, anywhere from 63-70 years of age.

How are pension funds in Iceland working against the economy?

Pension funds have been having a hard time to find investments with a good return, especially after the government put on capital control on currency flowing from Iceland. One example of a pension fund working against the current economy is a pension fund in Iceland (unnamed here) with a lot of money to invest and not thinking about the future but only the current return on investment. The pension fund decided to buy up property in the Capital (Reykjavik), this might smell to you, a little bit like Enron but I might be wrong. When buying property in large quantity in a small nation, it impacts the economy with false return on their investments like Enron repeatedly did back in the day.

They created a demand in the market by having the property sit empty and unused and therefore increasing the price of property. What they are doing, is creating profits for the pension fund with bullying the market, this has an effect on the current economy and more families don’t have the means to buy their own home and therefore have to rent. That creates a demand for rentals and therefore the already rich, can buy the properties available and rent them out with inflation indexed rent, yes you heard right. Inflation indexed rent means that it will increase with inflation each month, leaving the renter with an unknown cash flow the following month.

Because the funds have an impact on the property prices, the loan capital amounts are higher (inflation indexed loans) and therefore the rent goes up. More and more people have to start renting smaller units and/or moving away from their current work area for a  chance of cheaper rent and commuting to work.

In my opinion the pension funds who do stuff like that are not serving their true purpose.

The cure…… coming soon, keep your eyes open.