Pension Funds in Iceland are Diverse

Pension funds in the country vary significantly. This includes differences in their structure, size, and accessibility—some funds are open to everyone while others are limited to specific professions. Smaller funds face different challenges than larger ones due to their size, particularly regarding operational arrangements, participation in the Pension Funds Association affairs, or their influence at shareholder meetings of companies they invest in. In our Pension Book, Sturla Ómarsson, Chairman of the FÍA Pension Fund, discusses the importance of pension fund board members being engaged regardless of their fund's size.

Taking an Active Interest

Pension funds have historically played a vital role in Icelandic society, and if predictions about the continued growth of the system prove accurate, the importance of Icelandic pension funds will only increase further.

One could argue that Iceland's pension system is in many ways quite simple, yet simultaneously quite complex. Funds still operate under various arrangements, though the pace of pension fund mergers that were prominent in recent decades has slowed. Approximately 20 pension funds are currently operating, both general and public sector funds, raising the question of how far fund consolidation can go.

Today, there are small funds with unique characteristics, such as different bylaws or closed membership. These funds face different challenges due to their size compared to larger funds, particularly regarding operational structure, participation in the Pension Funds Association, or their influence at shareholder meetings of companies they invest in.

There has been public discussion suggesting that pension funds are not sufficiently active in participating at annual meetings of listed companies. In this context, it's worth considering the different purposes of public and general funds, where pension rights are secured in different ways. Additionally, discussions and policies within fund boards can vary based on the funds' positions, and politics can play a significant role. In recent years, there has been a shift toward greater activity, but in my view, pension funds generally need to go even further in active ownership.

According to law and bylaws, the role of pension funds is to secure pensions for their members, their spouses, and children. That said, I believe it is the duty of everyone who accepts a position on a pension fund board to participate in the following tasks beyond traditional board duties:

• Participating in discussions and providing feedback when appropriate regarding legislative changes.

• Participating in discussions related to the Pension Funds Association.

• Participating in annual general meetings of companies in which the fund holds shares.

One might question whether small pension funds should have a different role due to their limited weight. But where should the line be drawn?

Regarding participation in company annual meetings, many pension fund boards have established shareholder policies with clear guidelines about where and how they intend to participate in the annual meetings of companies they invest in.

Having been a board member of a small pension fund for a long time, I believe all board members should take an active interest in these matters. They should participate in discussions about fund issues and be active owners regardless of size or influence. We must not forget that even if a fund's total size is relatively small compared to other funds, it still represents one of the largest assets of its members, who deserve board members who fulfill their roles in a purposeful and responsible manner.