The importance of equalising the disability burden of pension funds

The government's budget bill for next year proposes reducing the contribution for equalising the disability burden of general pension funds by ISK 4.7 billion, with the contribution to be abolished entirely in 2026. If unchanged, this will lead to a reduction in the pension rights of members of several pension funds, including Gildi Pension Fund.

The reason is that the incidence of disability varies between occupational groups. Gildi's disability burden, as a pension fund for, among others, labourers and seafarers, is considerably higher than that of most other funds. Every króna spent on paying rehabilitation and disability pensions correspondingly reduces the capacity to pay retirement pensions. This means that the higher a pension fund's disability burden, the fewer krónur are available in the fund to pay retirement pensions. Retirement pension entitlements are therefore generally lower at funds with a high proportion of disability cases. For this reason, it was agreed in the 2005 collective wage agreements that the state would pay a special "contribution for equalising the disability burden of pension funds" to reduce the disparity created between pension funds by differing rates of disability.

5.7% reduction in entitlements if unchangedGildi Pension Fund uses the state's contribution for equalising the disability burden partly to increase the accrual of entitlements for contributing fund members, and partly to increase pension payments for fund members already receiving a pension. Combined, the state's contribution increased the entitlements of Gildi's fund members by 5.7% last year. Based on the bill currently proposed to abolish the disability contribution, the increase in fund members' entitlements will be only 2.85% next year and 0% thereafter. In other words, if the contribution for equalising disability is abolished, this will result in a combined reduction of 5.7% in the entitlements of Gildi's fund members, if nothing else changes.

A solution must be foundThe state's contribution for equalising the disability burden is extremely important, even though it has not been sufficient to fully equalise the substantial difference in the disability burden between pension funds. In the fund's view, it is reasonable to review the allocation arrangements for the contribution in order to achieve genuine equalisation of the disability burden between funds. Equally, it is extremely important not to reduce this contribution for equalising disability for funds with a high disability burden, at least not until other solutions are in place, otherwise it will lead to a reduction in fund members' pensions.

Gildi Pension Fund has sent Alþingi a detailed submission regarding the government's plans to abolish the contribution for equalising the disability burden of pension funds. The submission can be found below, and interested parties are encouraged to read it.

Gildi Pension Fund's submission regarding the reduction of the contribution for equalising the disability burden of pension funds