LSR Simplifies Private Pension Savings Investment Plans

To make the service simpler and clearer for members, while reducing costs and increasing efficiency in the management of Private Pension Plans. The complexity of managing Private Pension Plans — for example, in terms of processing, member services, investments, and administration — increases proportionally with the number of available Plans.

By offering two simple Plans, members will have clearer choices, and operational costs will decrease, which directly translates into higher balances for members. The efficiency gains are further enhanced by aligning the Private Pension investment strategy with that of Division A, LSR’s main division.

You don’t need to take any action.

If you currently have savings or are contributing to Plan I or Plan II, your contributions will automatically be directed to the Securities Plan, and your balance will be transferred there as well.

If you have savings or are contributing to the Specified Private Pension, the change only affects the investment strategy and involves a backend portfolio transfer within LSR’s systems — aimed at increasing efficiency and reducing administrative costs.

If you have savings or are contributing to Plan III, the only change will be its new name, Deposit Plan.
However, if you wish, you are welcome to make changes to your Private Pension holdings. Using the form “Change to Private Pension Agreement,” you can switch investment Plans or transfer your balance between Plans, either partially or in full.

It is not possible, however, to transfer Specified Private Pension savings to another Plan.

With the new Private Pension Plans — the Securities Plan and the Deposit Plan — we offer two clear choices.

The Securities Plan invests 60% in equities and 40% in bonds, similar to LSR’s Division A. Its goal is to achieve strong long-term returns. This approach has historically performed well, though temporary downturns can always occur. We therefore recommend this Plan for younger members who have sufficient time to grow their savings and can tolerate market fluctuations in pursuit of higher long-term returns, or those who prefer a higher-risk savings approach.

The Deposit Plan, on the other hand, invests in indexed and non-indexed deposit accounts, resulting in minimal volatility. It can be compared to returns on a high-interest, inflation-indexed bank account, with rates that fluctuate according to general market conditions. This is a sensible choice for members who are older, may already have built up a sizeable Private Pension fund, and wish to protect it from possible downturns as they approach withdrawal age, or those who prefer a lower-risk savings approach.

If you wish to benefit from both Plans, you can also transfer part of your balance from one Plan to the other.

You may also choose the so-called Combination Plan (Sér-leið). Under this arrangement, you contribute to the Securities Plan until the age of 55, after which contributions are directed to the Deposit Plan. At the same time, your existing balance is automatically transferred from the Securities Plan to the Deposit Plan in equal instalments over a three-year period starting at age 55.

That’s a direct benefit to you! Icelandic pension funds such as LSR are entirely owned by their members. This means that only the members themselves benefit when operating costs are reduced.

Some other providers of Private Pension savings in the Icelandic market are owned by large corporations that charge fees to their customers and distribute part of the operating profit to their own shareholders. For that reason, they often maintain large sales networks whose job is to attract new customers — and frequently use members’ initial contributions to pay sales commissions to those agents.

LSR does not operate this way. We charge no initial fees or sales commissions when you start saving into your Private Pension, no fees when you make changes to your savings plan, and no fees if you ever decide to stop contributing.

You also receive the full benefit of the annual return, minus only the actual operating costs — that is, the direct expenses of running the Private Pension divisions, such as staff costs for member services, investment management expenses, and IT systems.

The operating costs of LSR’s Private Pension have historically been low, and with this change, the goal is to reduce them even further — so that an even greater share of the returns goes directly to you.

It is never possible to make definite predictions about future returns.

Historically, equities have generally provided the best long-term returns, although they tend to fluctuate more and periodically experience periods of low or even negative performance. That’s why equity investments are always considered long-term investments.

Bonds, on the other hand, carry less risk — their values fluctuate less and returns are typically steadier. The Securities Plan will invest 60% of its assets in equities and 40% in bonds, consistent with the investment strategy of Division A, LSR’s main division. Division A has delivered the strongest long-term returns of all LSR divisions over the past decade, as shown below:

(Net real return represents the return in excess of inflation each year.)

The Deposit Plan invests exclusively in indexed deposit accounts, meaning that returns will be similar to those of an indexed bank savings account. Many members choose to move their balance into this type of savings Plan as they approach retirement, to reduce exposure to potential market downturns during the withdrawal period.

The Specified Private Pension will continue to be offered as a separate, distinct Private Pension Plan within LSR, as it forms part of the mandatory pension contribution and is by nature different from the other Private Pension Plans. Therefore, you will not notice any significant changes to the service itself.

However, certain adjustments will be made in terms of asset management, which we believe will benefit you and other members saving in the Specified Private Pension. The assets of the Specified Private Pension will become part of the Securities Plan’s portfolio and will follow the same investment strategy.

This will result in operational efficiencies in the management of the Specified Private Pension, reducing costs and thereby contributing to higher returns for members.

No, that is not possible. The Specified Private Pension is governed by different legislation than regular Private Pension savings. Among other things, the law stipulates that the investment authorizations for Specified Private Pension assets must align with those of mutual pension funds. Investing exclusively in deposits does not fall within those authorizations.

Plan II was something of a middle ground between Plan I and Plan III, with a greater emphasis on bonds than equities. The returns of the new Securities Plan may fluctuate more than those of Plan II did, but the goal is to achieve better long-term returns.

If you wish to reduce fluctuations in your balance, one option is to transfer part of your savings from the Securities Plan to the Deposit Plan. The portion held in the Deposit Plan will remain more stable, resulting in smaller relative fluctuations in your overall balance.

You can request a transfer between Plans using the “Change to Private Pension Agreement” form available on My Pages.

All changes to your Private Pension are made using the “Change to Private Pension Agreement” form, available on My Pages. There, you can:

• Change your contribution payments, so that future contributions go into a different Private Pension Plan than the one you currently contribute to.
• Transfer your existing balance between Private Pension Plans, either partially or in full.
• Change your contribution rate (for example, from 2% of salary to 4%, or vice versa).

If you plan to transfer your balance between Plans — especially if the amount is large — we generally recommend doing so gradually over a longer period to smooth out fluctuations and reduce the risk associated with moving your funds.

This approach helps prevent situations where your entire balance might be moved out of the Securities Plan during a temporary downturn, which would “lock in” a loss before the next upswing. Making smaller transfers over an extended period can help balance out such short-term fluctuations.

On the form, for example, you can choose to transfer your balance in equal instalments over 36 months, or specify another number of monthly payments for the transfer.

Transferring your balance between investment Plans is free of charge.

No, there are no fees for changing your contributions or transferring your balance between LSR’s Private Pension Plans.