Icelandic pension funds lost heavily in economic crash

Iceland’s pension funds lost at least ISK 70 billion (USD 621.3 million) in the banking crisis. The Icelandic parliament investigating committee believes the funds had been hoping to stimulate growth and confidence with their investments at the time.

Meanwhile, the amount of money each Icelander is entitled to when they retire has been cut due to the pension funds’ massive losses, reports.

Among the funds’ trades at the time were special ‘currency defence’ contracts, the goal of which is to reduce currency risks.

The parliamentary investigation committee notes that the pension funds’ currency protection contracts increased as the krona weakened – apparently meaning that fund managers were actively pursuing a policy of investing in the krona in the hope of making money as it strengthened again. With hindsight, all they were doing was throwing vast sums of citizens’ money into a black hole.

The funds put a big gamble on a recovery of the Icelandic krona right up to the last moment, then, in October 2008, when the currency controls came into effect, the loss of their money was sealed.

The committee report says that the actions of the three largest pension funds are worthy of consideration. As funds which should always be looking towards long-term growth, they appear to have taken massive risk in the pursuit of short-term gain.

It is not clear exactly how much the pension funds lost in such currency trade, but according to the newest Central Bank of Iceland estimate, it is ISK 73 billion. For comparison, that is more than double the amount the state plans to save in cut-backs next year.

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