LÍV Calls Proposed Legislation Flawed
12. June 2025Resolution of the Commercial Federation of Iceland Board on the Proposed Legislation for Mandatory Pension Insurance and the Operation of Pension Funds
The board of the Commercial Federation of Iceland (LÍV) shares the concerns of the social partners regarding the proposed amendments to the Social Security Act and the revision of the disability pension system. The board believes it is evident that, if passed in its current form, the bill would undermine the pension funds’ solidarity system and result in a transfer of assets from old-age pensioners to disability pensioners. Over time, this proposed redistribution would negatively affect the living standards of retirees, as their income would be lower than it would otherwise be.
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The bill proposes that costs related to increased disability payments be shifted onto working people and pensioners, i.e., the members of the pension funds.
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The bill would exacerbate imbalances in the distribution of disability burdens between pension funds. This calls for countermeasures to equalize the burden, yet the government's financial plan proposes to unilaterally eliminate disability equalization, a move the Commercial Federation of Iceland strongly opposes.
The board of the Commercial Federation of Iceland strongly protests the government’s unilateral breach of the agreement made with the social partners on equalizing the disability burden among pension funds—particularly since the underlying assumptions have not changed and no alternative arrangement has been negotiated to ensure disability burden equalization without compromising the funds' ability to meet their obligations to their members.
The structure of disability insurance has long been controversial, both due to the interaction between the Social Insurance Administration (TR) and the pension funds, and due to unequal disability burdens across funds, which has historically been corrected through equalization payments from the state treasury. It would be more appropriate for the government to guarantee the basic subsistence of disability pensioners and make political decisions on that basis without significantly impacting the operations of pension funds. Under such a structure, the pension funds would retain their intended role—compensating for lost earnings by paying income-related disability pensions in addition to the basic support provided by the state. This would eliminate the problematic interaction between systems and significantly reduce the need for disability burden equalization among funds.
The proposed legislation is severely flawed and requires comprehensive and well-considered consultation with the nation’s pension funds and labor market partners.