Two Icelandic Pension Funds Ink Pact for Merger

Two pension funds in Iceland – Lífsverk and the Almenni Pension Fund – have signed a merger agreement, which is subject to the approval of the merger proposals by the fund members’ meetings and the approval of amendments to the articles of association of both funds by the Ministry of Finance and Economic Affairs.

The agreement is subject to the approval of the merger proposals by the fund members’ meetings and the approval of amendments to the articles of association of both funds by the Ministry of Finance and Economic Affairs. After clearing all formalities, the merged pension fund is expected to begin operations on 1 January 2026.

The merger of the pension funds aims to create a stronger foundation for good pension entitlements and create a larger fund that will be better able to meet increased demands and provide better service. The goal is also to achieve operational efficiencies that can contribute to lower costs and higher returns for fund members.

Proposals for a merger will be presented separately at fund member meetings in October and on the funds’ websites. The plan is for the proposals to be formally presented to fund member meetings in both funds on November 11, and fund members to take a position in electronic elections from November 11 to 13.

According to Central Bank of Iceland figures, pension assets stood at $640 million at the end of 2023, which is equivalent to 184% of gross domestic product (GDP) having grown tenfold since the turn of the century.

The funds’ combined assets are now larger than those of the Icelandic banking system and insurance sector combined, and more than sufficient to buy all listed equities, bonds and bills in the country. At the same time, the system has become increasingly concentrated. Whereas 96 funds operated in 1980, only 21 remain today, with the three largest controlling around half of total assets.

Many Challenges

The Central Bank also noted that while consolidation has brought economies of scale, it also raises challenges for how pension funds are managed and the extent to which they should exercise influence as shareholders in Icelandic companies. Hence, the Central Bank stressed the need for a review of the Pension Fund Act.

“Certain elements of the Act should be adapted to align with other legislation on supervised financial activities such as banking and insurance activities, which has been amended significantly for the better in recent years,” the report noted.

Founded in 1954, Lífsverk is one of Iceland’s oldest pension funds, originally limited to engineers but since 2016 open to all university graduates. Almenni, established in 1965, is an open pension fund serving a broad range of professions, including architects, doctors, musicians, technicians and tourist guides.

If approved, the new fund will be Iceland’s fifth largest, with $5.52 billion in assets (based on figures at 31 December 2024) and follows a long-term trend of consolidation in the Icelandic market.