As of July 1st, the Pension Fund for Icelandic State Employees (LSR) will lower its benefits by approximately 10%. In an announcement on the benefit cut, LSR stated that it was in part due to rising life expectancy.
The Ministry of Finance and Economic Affairs released new life expectancy tables at the end of 2021, which assume that Icelanders will live considerably longer than previously estimated, and that younger generations will have a longer life expectancy than older generations.
“Someone who is in their sixties today will live two years longer than previously estimated. But someone who is 25 years old today is expected to live four years longer than previously estimated,” stated Harpa Jónsdóttir, Executive Director of LSR. She continued: “And the thing is, we are still going to pay for the same length of time, but there is no additional money coming into the pot. So, we just need to take the same money and spread it over more years.”
Pension funds must now adapt to these changes and anticipate paying pensions for a longer period than previously calculated. On average, these changes will result in a decrease of 9.9% in the monthly entitlements of those currently contributing to the fund. For those that receive pensions from the fund and do not have state insurance, the payments will decrease by 4.1% from July 1st of the upcoming year.
The changes will apply to those who will receive payments from the fund in the future, while the entitlements of those who already receive payments from the fund will decrease by about 4%.
According to LSR, “the reduction in rights and pension payments is a significant measure for the fund but is nevertheless necessary given the current situation.”