Iceland’s Gigantic Pension Fund Is Creating a Headache at Home

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Iceland is confronting the trouble that comes with having a pension system so successful in amassing savings for future retirees that it was recently rated the best in the world, Bloomberg News reported. With assets now at about double the size of the north Atlantic island’s economy, the government is considering allowing investment managers to diversify by buying up more securities abroad, prompting the central bank to urge caution. The rules currently limit the share of overseas holdings in pension assets at 50%. “The system has become so big,” Finance Minister Bjarni Benediktsson said in an interview, describing collective retirement savings of 6.4 trillion kronur ($49 billion). “It goes without saying that we cannot limit all investment opportunities to the domestic market.” The tourism-dependent nation has long been vulnerable to boom-bust cycles. The turmoil that followed the bankruptcy of Lehman Brothers in the autumn of 2008 crippled its outsized banking sector, almost wiped out the domestic stock market and caused the retirement system to lose more than 20%. With some funds nearing the cap on foreign holdings, calls to raise it have grown louder recently. Read more.
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