On December 8, 2009, 16 pension funds established the Icelandic Investment Fund (IIF) to aid Iceland's economic recovery from the recent international financial crisis. The move to use pension fund money to help stabilize the economy was recommended by the International Monetary Fund following the October 2008 collapse of the country's financial system. This brought the financial markets to a standstill and led to dramatic currency depreciation, higher interest rates, and a decline in asset prices. Government projections suggest that a further decline in real gross domestic product (GDP), which fell by 8.4 percent in 2009, is expected until 2011.
Pension funds participating in the IIF, which control roughly 34 percent of the 1.8 trillion kronur (US$14.4 billion) in total assets managed by Icelandic funds, have pledged to contribute approximately 30 billion kronur (US$236 million). IIF investments will target viable domestic companies. Details of the investment policy, including criteria for setting the minimum size of businesses that might receive investment, will be determined by the fund advisory board. Eventually, investors other than pension funds may be allowed to participate in the IIF. The investment fund is expected to invest its capital over the next 3 years and operate for no more than 10 years.
The Icelandic pension system includes three pillars: (1) a tax-financed and means-tested public pension program, (2) mandatory occupational pension funds, and (3) voluntary tax-advantaged savings. According to the Organisation for Economic Co-operation and Development (OECD), assets held by Iceland's mandatory occupational pension funds in December 2008 amounted to more than 100 percent of GDP, ranking them among the highest in OECD countries.
Sources: "The Icelandic Pension System," Iceland Ministry of Finance, March 2007; "Iceland's Crisis Fund," IPE.com, October 1, 2009; "Iceland: First in Line with IMF Deal," Economist Intelligence Unit—Country Monitor, October 20, 2008; "The Icelandic Economy (Autumn 2009): Macroeconomic Forecast, 2009–2014," Iceland Ministry of Finance, October 1, 2009; "Icelandic Property Investment in Jeopardy over Foreign-owned Assets," Nordic Region Pensions & Investment News, December 1, 2009; "Icelandic Pension Funds Found Investment Group," Iceland Review Online, December 10, 2009; "Icelandic Pensions Establish Private Equity Fund," IPE.com, December 11, 2009.