Accrued-to-date pension entitlements in social insurance amounted to 2,700 billion ISK in year-end 2018 according to calculations from Statistics Iceland, equivalent to 95% of GDP for the year. Pension liabilities of pension funds of private enterprise employees (defined contribution schemes) amounted to 3,300 billion ISK and 1,100 billion ISK for pension funds of public employees (defined benefit schemes) at year-end 2018. Estimates of the total pension entitlements in social insurance, pension funds of private enterprise employees and pension funds of public employees, amount to 7,100 billion ISK.
This is the second time that an estimation of accrued-to-date entitlements in social insurance in Iceland has been published, but its first publication was in 2015. These statistics are part of the European Union's ESA 2010 National Accounts Standard.
For estimating the pension entitlements in the social insurance system, the methodology of accrued-to-date liabilities (ADL) was chosen. ADL only includes the entitlements that current members have earned up to the present period in the calculation. This method excludes any possible entitlements gained throughout the working life of those already in the system and any new entrants to the system. It is a point-in-time estimate for the accumulation of entitlements at year-end 2018.
The results are therefore not an indicator of fiscal sustainability of the social insurance pension system, as it is not a funded system. ”Old age pension” in social insurance includes old age pension and single household supplements paid by the Social Insurance Administration. Survivors‘ pension and disability pension for recipients under retirement age are excluded.
The present value of the pension liabilities in social insurance is highly affected by the discount rate and in accordance with guidelines, the baseline discount rate, 3% real rate, is used. In 2018 the estimated pension liabilites in social insurance with the real discount rate of 3% amounted to 2,701 billion ISK. By reducing the discount rate by 1% the estimated pension liabilities increase to 3,250 billion ISK and with a similar increase, pension liabilities amount to 2,283 billion ISK.
Total pension entitlements, as a percentage of GDP in Iceland, amounted to 250% in 2018 and the pension entitlements in social insurance to 95% as previously stated. International comparison of pension systems is difficult due to the different nature of the systems and how they are financed. In the figure below, only the Netherlands has a higher proportion of private/funded pension entitlements than Iceland.
Source: Eurostat
Eurostat news release on pension liabilities in the national accounts