Pension funds in Iceland will be allowed to invest abroad this year once the Central Bank of Iceland lifts capital controls that were put in place in 2008.
The central bank said in a statement Wednesday that it intends to grant pension funds in the country an exemption to the Foreign Exchange Act, which restricts investment in financial instruments issued in foreign currencies. The rules were put in place in November 2008 following Iceland’s banking crisis that year.
The total authorized investment in foreign securities by pension funds, as well as other domestic providers of personal saving schemes, will be 10 billion Icelandic krona ($76 million,) said a spokeswoman for the central bank. The investment total will be allocated between parties depending on the size of the pension fund, which carries a 70% weighting in the allocation decision, and net inflows — contributions less paid out benefits — which carries a 30% weighting. Recent inflows of foreign currency, and reduced uncertainty over the prospects for the balance of payments following certain rules passed in Iceland regarding the covering settlement of the estates of failed commercial and savings banks, as well as new measures for the treatment of offshore kronur, “will create scope for investments by pension funds … in financial instruments issued in foreign currencies,” said a statement from the central bank.
“Such investments represent a benefit to the national economy in that they will enable the pension funds to achieve a better spread of risk in their asset portfolios while reducing the build-up in pension funds’ foreign investment requirements once capital controls are lifted,” said the statement. The risk of instability in the wake of Iceland’s lifting of capital controls will also be reduced.
Pension funds will have to apply for exemptions.
The spokeswoman said specific dates regarding the lifting of the capital controls are yet to be decided.