Answer: Indexed deposit accounts generally bear lower interest than non-indexed accounts; however, indexation is paid on a monthly basis. Indexation is based on the consumer price index which ensures that savings retain their value in real terms. Note that indexed accounts have a minimum fixed term of three years.

Generally bearing higher interest than indexed deposit accounts, non-indexed accounts generate higher annualised real returns when inflation levels are low. These accounts offer easy access to savings as there is usually no or merely a very short fixed term. Non-indexed accounts are suited to savers who wish to ensure good returns while retaining easy access to their funds.

Answer: Equally high whether paid out annually or on a monthly basis, the only difference lies in the timing. Monthly interest payments are added to the principal at the beginning of each month which means that the account holder accrues compound interest on paid interest. Total annual return will be equal to the annual return rate listed in the bank’s rate schedule.

Answer: The Icelandic Government has issued a statement to the effect that all deposits with domestic commercial and savings banks and their branches in Iceland are fully secure.

Statement from the Icelandic Government

Answer: FX accounts are categorised as deposit accounts and are as such fully secure.

Answer: Impairment comes as a result of the collapse of the three large commercial banks, which led to their nationalisation. With emergency laws passed on 6 October, deposits became priority claims over bonds of the commercial banks. This led to a great drop in the value of bank bonds, which in turn had a negative impact on the Money Market Funds as they had a significant investment in these bonds. Previously deemed one of the safest investment options on the market, bank bonds overnight became low value.

Answer: Yes. Landsbankinn’s Security Fund (Sparibréf) and Bond Fund (Skuldabréf) are at least 90% invested in government-backed securities and no more than 10% in deposits.

Answer: Owners of deposits in savings accounts have a direct repayment claim on their bank.

Holders of UCITS fund units own a proportionate claim on the underlying assets of the fund. They therefore have a claim on numerous financial enterprises, companies and/or, as the case may be, countries, municipalities and institutions.

The value of each fund depends on the underlying assets, i.e. the financial strength of the issuer of the assets in which the fund has invested and, as the case may be, any guarantees that individual issuers have provided. The position and fate of the financial enterprises that manage UCITS thus does not directly impact the value of UCITS funds, as their balance sheet is separate from that of the financial enterprise.

Answer: Employees may pay a maximum of 4% of untaxed wages to supplementary pension savings. The employer’s contribution, based on collective bargaining agreements, amounts to up to 2% which corresponds to 2% payments from the employee. Until 1 October 2010, the employee may contribution up to 6%.

Answer: Yes. Supplementary pension savings are redeemable as a lump sum from age 60. Disbursements must no longer take place over a 7-year period.

To withdraw pension savings, please complete the appropriate form at your local Landsbankinn branch or call +354 410 4040 to have the form sent to your home for you to sign.

Svar: Við andlát sjóðfélaga fá erfingjar greitt út að fullu úr séreign þar sem ekki þarf lengur að skipta greiðslum niður á nokkur ár.

Answer: Upon the death of the rightholder, his/her heirs receive full payment from personal pension savings, as payments must no longer be divided over a longer period.

Rights to half of the property held by the other party to marriage apply to personal pension savings and these benefits are fully inheritable under the Inheritance Act.

50% of personal pension savings fall to the surviving spouse (assuming marriage) and 50% is divided according to the Inheritance Act, i.e. spouse receives 1/3 and children 2/3.

Surviving spouses must apply for payment of personal pension savings. Necessary documentation includes: Probate report

Answer: Yes. To alter your investment options, please complete the appropriate form at your local Landsbankinn branch or call +354 410 4040 to have the form sent to your home for you to sign Transfers between the investment options of Íslenski lífeyrissjóðurinn or other options with Landsbankinn take place monthly. A request received before the 10th of the month is processed before the 15th of the same month. Pension owners may switch between investment options / Landsbankinn funds twice each year provided that a minimum of 6 months elapse between alterations. No fees are charged in connection with transferring pension savings between Landsbankinn funds.

Mutual division:

Monthly old-age benefits are paid from age 70 and to death. If a fund member selected disbursement methods II, III or IV, payments from the mutual division do not start until disbursement from his/her fixed-term personal savings stop. Disbursement from personal pension savings with no fixed term start at age 60 at the earliest. If rights acquired are less than ISK 5,802* per month benefits can be paid out in one lump sum based on an actuarial assessment of their value.

*Based on the CPI on 1 January 2009. Amount changes based on changes to the CPI.

Fixed-term personal pension savings are available for monthly disbursement as of age 70 and until payments from the mutual division start. If personal savings are lower than approx. ISK 944,957** benefits can be paid out as a lump sum after age 70.

**Based on the CPI on 1 January 2009. Amount changes based on changes to the CPI.

Answer:

Inflation-indexed and non-indexed pension savings account

Suited to savers who wish to ensure good returns on their supplementary pension savings through simple and secure means while avoiding fluctuations in returns.

Pension savings: Option – foreign equities

An option for savers who wish to invest in foreign equities. Fluctuations can be considerable. This option is only suited to those who have a long time left of pension contribution and who are aware of how great fluctuations may be.

Íslenski lífeyrissjóðurinn pension fund

Íslenski lífeyrissjóðurinn offers four investment methods for the mandatory pension savings of its members. Each individual investment method is based on the age of the saver and together they form the Lifestyle (Lífsbraut) system of Íslenski lífeyrissjóðurinn. Fund members are automatically transferred between the methods Life I, II, III and IV as they age. The investment methods are available for both mandatory and supplementary pension savings.

Answer: This is up to each individual saver and depends on his/her circumstances.

However, it should be pointed out that continuing payment towards supplementary pension savings – despite recent events – remains advantageous as employers contribute 2% to match the fund member's 2% premium.

It is also worth mentioning that a 4% contribution to supplementary pension savings only lowers disposable income by 2.5%. Similarly, a 2% contribution only diminishes disposable income by 1.2%.

Answer: As some uncertainty is still attached to a portion of its assets, Íslenski lífeyrissjóðurinn has applied precautionary write-downs to ensure the equal treatment of its members. The hope is that these write-downs can be reversed to a large degree once the operational eligibility of Icelandic financial institutions and companies becomes clearer. Please note that fund members who choose to transfer their savings to another investment form do so at the current rate at each time. In so doing, they negate their rights to a proprietary share in assets that may be recovered later if the precautionary write-downs reverse to any degree.

Answer: Customers can transfer their supplementary pension savings between custodians. At the customer’s request, the new custodian will inform the current custodian of the termination and transferral. Transferral costs 1% of the fund member’s savings, or a minimum of ISK 5,000. Two months term of notice must be given. Keep in mind that by transferring current savings, the customer forfeits his/her rights in regard to precautionary write-downs, which means that no benefits will accrue to the customer if the fund later recovers some of its losses.

Answer: Pension savings deposited to Landsbankinn’s pension savings account Lífeyrisbók are guaranteed by the Depositors’ and Investors’ Guarantee Fund. Pension funds under the custodianship of Landsbanki Íslands are not secured by the Depositors’ and Investors’ Guarantee Fund, as they do not deal in deposits with banks. This applies to Íslenski lífeyrissjóðurinn.

Answer: Supplementary pension savings are deductable for taxation purposes upon deposit but income tax is paid upon disbursement. Premiums are thus deposited untaxed to personal pension savings programmes but are taxed upon disbursement in the same manner as normal wages. In essence, this means that payment of income tax is deferred until disbursement begins, which means that the rightholder can benefit in two ways: Unused personal tax allowance can be used to lower tax payments once savings are withdrawn and income tax may have been lowered upon disbursement.

No financial income tax is levied on interest income collected by the rightholder during the savings period, nor net worth tax on accumulated benefits. In the event of death, the savings are paid in full to the rightholder's heirs and no inheritance tax applies. No net worth tax is paid on supplementary pension savings.

Answer: If the disability suffered is 100%, the beneficiary can receive full payment of his/her savings over a period of 7 years. The annual payment shall decrease and the length of the withdrawal period be extended in proportion to a lower disability ratio.

Answer: No. It is up to the beneficiary to choose where to deposit supplementary pension savings. Both financial undertakings and pension funds accept supplementary pension savings.

Disbursement is non-conditional and all owners of supplementary pension savings are eligible to apply. Disbursement is intended as a remedy for individuals experiencing temporary financial difficulties. Customers who are experiencing serious financial difficulties are advised that supplementary pension savings are not enforceable by execution. It is also worth noting that advance payment of pension savings can have a significant impact on payments at pension age. Beneficiaries who have reached age 60 do not have to apply for disbursement under the temporary withdrawal authorisation clause, as benefits are available for free withdrawal as of that age.

Temporary authorisation to withdraw personal pension savings is intended for individuals who need to bridge the gap between income and expenses over the next few months and those experiencing temporary financial difficulties. Bear in mind that pension savings are not enforceable by execution. Careful consideration should therefore underpin decisions as to whether disbursement can be used to rectify the situation or if financial difficulties have become so severe that pension savings are best left untouched.

The withdrawal limit is ISK 1,000,000, before tax. The amount is paid out over a 9 month period. If the rightholder’s benefits are lower than ISK 1,000,000 or if he/she wishes to withdraw a lower amount, the disbursement period is shortened accordingly.

The maximum monthly payment before tax is ISK 111,111 for 9 months, or ISK 69,778 after tax. Income tax (37,2%) is withdrawn from the amount.

Yes, payment slips will be available through Personal Internet Banking but a special request must be made to receive them via post.

The disbursement period is simply shortened accordingly.

Example:

Amount for disbursal is ISK 600,000. Monthly payment is ISK 111,111 before tax for 5 months and the remainder, ISK 44,445 is paid out in the 6th month. Note that income tax (37.2%) is levied on the amount.

Amount for disbursal is ISK 300,000. Monthly payment is ISK 111,111 before tax for 2 months and the remainder, ISK 77,778 is paid out in the 3rd month. Note that income tax (37.2%) is levied on the amount.

No. Withdrawing supplementary pension savings does not affect social benefits, in accordance with the Acts on Social Security and Social Assistance. Further, disbursement will not affect rent subsidies, children’s benefits, interest subsidies or unemployment compensation.

Applications for disbursement from supplementary pension savings can be submitted through Personal Internet Banking and at all Landsbankinn branches. The first payment takes place on 20 April. Payments will take place on the 20th of every month and applications must be submitted no later than on the 10th of the same month. Applicants who wish to use their tax allowance must bring their income tax card when applying for disbursement.

Disbursement takes place monthly. The Directorate for Internal Revenue, which monitors the payments, must approve all applications. The aim is for payments to take place on the 20th of every month and for the submission of applications to take place no later than on the 10th of the same month. Payments will only be made to accounts in the beneficiary’s name.

The maximum amount for withdrawal from supplementary pension is ISK 1,000,000 regardless of whether the aggregate benefits are deposited with one or more custodians.

Yes, that is possible. To discontinue payments, please notify a Landsbankinn branch. The bank will contact the Directorate of Internal Revenue, which is the agency responsible for disbursements from supplementary pension savings.

Yes. A customer’s receiving early disbursement should not affect future payments to the fund. Amendments to the legislation also allow employees to raise their contribution to 4% to 6% of wages between 1 March 2009 and 1 October 2010.

No. Personal savings linked to mandatory pension cannot be withdrawn. Only personal pension savings created through contributions to supplementary pension plans may be withdrawn.

Yes. It is possible to raise personal contributions to supplementary pension savings to 6% between 1 March 2009 and 1 October 2010.

No fee will be charged in relation to temporary disbursement from supplementary pension savings.

Applications will be accepted until 1 October 2010. The aim is for payments to take place on the 20th of every month and for the submission of applications to take place no later than on the 10th of the same month.

Benefits are calculated as of entry into force of the legislation, 13 March 2009. Later contributions to funds cannot be withdrawn as advance disbursement.

Supplementary pension savings become redeemable at age 60, upon permanent disability and death. Supplementary pension savings are fully inheritable according to provisions of the Inheritance Act.

Answer: There are no restrictions on partial payments or repayments of loans. If payback fees apply, the amount will be according to the bank’s current tariff.

Answer: The Icelandic parliament Althingi has passed legislation authorising the HFF to assume the housing mortgages of financial undertakings. The authorisation applies to both foreign and domestic loans, irrespective of amount or encumbrances. No specific programme has been issued to explain how such transferrals will take place.

Information on the website of the Ministry of Social Affairs

Upplýsingar á vef Félagsmálaráðuneytisins

Answer: Landsbankinn encourages customers who consider themselves heading for or are already experiencing payment difficulties to visit their local branch for advice or request an interview online or with an advisor through the Call Centre, tel. +354 410 4000.

All advice requests are reviewed by a team who considers each case and seeks individual solutions. Should they feel concerned about their position, customers are encouraged to seek assistance at the earliest opportunity so that timely action can be taken to avoid further difficulties.

Answer: Payment netting indicates a temporary lowering of the repayment levels of inflation-indexed loans. Customers make payment on due dates based on a netting index while the loan itself remains linked to the consumer price index and the loan principal changes accordingly. The loan principal therefore grows while the repayment burden is lowered.

Answer: The repayment burden on indexed loans has shot upwards recently on the back of rising inflation. At the same time, purchasing power has fallen, increasing the repayment burden of indexed mortgages. The purpose of payment netting is to offer borrowers a way to lighten the repayment burden temporarily during the economic slump.

Answer: Customers of Landsbankinn with indexed loans issued against mortgages in residential housing can apply for payment netting, if they deem it to be in their own best interest.

It is not possible to apply netting to loans in arrears. Defaults must be dealt with and paid off first. Customers in this position are advised to contact their local branch.

Answer: Customers who wish to apply payment netting to their mortgages can apply through Personal Internet Banking or at their local branch.

Applications for instalment due dates on the 1-5th of each month must be submitted before the 21st on the previous month. For instalment due dates around the middle of each month, applications for payment netting must be submitted before the 5th of that month.

Answer: Customers applying for payment netting must submit a statement or overview of encumbrances relevant to the mortgaged asset.

In general, secondary mortgagees must approve payment netting and term amendments for their part. Most financial institutions and pension funds have signed an agreement approving term amendments for the purpose of payment netting in general. A list of these financial institutions is attached to the payment netting application.

Svar:

Answer: 1. Instalments are based on a new index – the netting index – to be published on a monthly basis. The index weights wage and employment developments.

2. If instalments on the loan based on the netting index drop below instalments calculated based on the CPI, payment of the difference is deferred until the netting index again overtakes the CPI.

3. The difference, or deferred instalment, is entered into a special equalising account which is added to the loan principal.

4. If instalments under the netting index become higher than payments based on the CPI, the difference is deposited to the equalising account and serve to lower the principal.

5. If the balance on the equalising account is negative at the conclusion of the original loan period, the loan period is extended.

6. Should the borrower’s situation change for the better during the loan period, it is possible to opt out of payment netting.

Answer: Based on the planned entry into force of the Act, the repayment burden on indexed residential housing mortgages will decrease by up to 5% as of December 2008. The economic forecast of the Central Bank estimates that payment netting will by the end of 2009 lower the repayment burden on these loans by 17%.

Answer: Netting actually leads to increased costs to the borrower in the form of interest and indexation. While netting lowers the repayment burden on a loan temporarily, easing pressure on household finances, it may not suit the needs of all borrowers.

Answer: Yes. Should the borrower’s situation change for the better during the loan period, it is possible to opt out of payment netting. Requirements are that payments on the loan have been rendered fully and on time. If the balance on the equalising account is negative at the time, it is added to the loan principal and paid off throughout the remaining loan term.

Answer: No. No costs are incurred through payment netting.

Customers applying for payment netting must submit an overview of encumbrances. Charges according to the bank’s current tariff apply if the client requests that Landsbankinn obtain the overview on his/her behalf.

Answer: Payment netting indicates a temporary lowering of the repayment levels of indexed loans. Customers pay instalments on the due date based on a netting index while the loan itself is CPI-linked and the loan principal changes accordingly. The difference, or deferred instalment, is deposited to a special equalising account which is added to the loan principal.

Answer: The repayment burden of exchange rate indexed loans, depending on the currency composition of each loan, has risen parallel to ISK weakening. The purpose of payment netting is to offer borrowers a way to lighten the repayment burden temporarily during the economic slump. It is, however, the currency composition of the loan, i.e. exchange rate and interest developments of the currency in question, that determines the extent to which netting affects the repayment burden. While netting lowers the repayment burden on a loan temporarily, it may not suit the needs of all customers or be the most advantageous choice in all cases.

Answer: Customers of Landsbankinn with exchange rate indexed loans issued against mortgages in residential housing can apply for payment netting, if they deem it to be in their own best interest.

It is not possible to apply netting to loans in arrears. Defaults must be dealt with and paid off first. Customers in this position are advised to contact their local branch.

Answer: Yes. A fee for the registration of mortgages must be paid to the district magistrate, in accordance with the current tariff.

Customers applying for payment netting must submit an overview of encumbrances. Charges according to the bank’s current tariff apply if the client requests that Landsbankinn obtain the overview on his/her behalf.

Answer: It is the currency composition of the loan, i.e. exchange rate and interest developments of the currency in question, that determines the extent to which netting affects the repayment burden. While netting lowers the repayment burden on a loan temporarily, it may not suit the needs of all customers or be the most advantageous choice in all cases.

Answer:

1. Instalments are based on a new index – the netting index – to be published on a monthly basis. The index weights wage and employment developments.

2. The index is based on instalments on 2 May 2008, plus the netting index. If instalments on the loan based on the netting index drop below instalments calculated based on Landsbankinn’s general exchange rate, payment of the difference is deferred until the netting index again overtakes the exchange rate.

3. The difference, or deferred instalment, is deposited to a special equalising account which is added to the loan principal.

4. If instalments under the netting index become higher than payments based on the general exchange rate, the difference is deposited to the equalising account and serves to lower the principal.

5. If the balance on the equalising account is negative at the conclusion of the original loan period, the loan period is extended. Outstanding debt at the end of the netting agreement must be paid off in a shorter time period than half of the term of the original loan.

6. Should the borrower’s situation change for the better during the loan period, it is possible to opt out of payment netting.

Answer: Returns on inflation-indexed accounts are comprised of interest and indexation (inflation compensation). Indexation is intended to ensure the value of deposits in real terms so that the same products can be bought with the amount upon withdrawal as upon deposit, i.e. the amount should buy the same product basked in addition to having accrued interest. Indexation ensures that the value of an amount remains the same despite inflation. In essence, indexation hedges against uncertainty surrounding inflationary developments during the period of deposit.

Answer: Changes to the CPI, i.e. inflation, are used to calculate so-called indexation compensation which is added to the principal. In the case of deflation, indexation becomes a negative value. Changes to the CPI in January 2009 affect indexation two months later, i.e. in March 2009, at which point the account balance increases (or, in the case of deflation, decreases) parallel to the rise in the index.

Answer: The short answer is that this depends on the savings goals of each individual (see answers to the next two questions).

Answer:

- When inflation levels rise more than expected, returns on indexed accounts are generally better than on non-indexed ones.

- When the owner wishes to safeguard the value of the principal in real terms.

- A good option for long-term savings. Indexed accounts have a fixed term of 3 years at a minimum.

Answer:

- When inflation levels are lower than expected, returns on non-indexed accounts are generally better than on indexed ones.

- When the owner wishes to be able to access his/her savings at any time, as non-indexed accounts generally do not have a fixed term.

- Practical as a depository for reserve funds intended to meet unexpected expenses. Non-indexed interest rates generally fall in tandem with policy rates, but lower policy rates can also affect indexed interest rates. However, the causal relationship is not as direct in the case of indexed interest rates. Similarly, high nominal rates do not necessarily indicate that savers are best served depositing to non-indexed accounts.

Answer: Returns on inflation-indexed accounts are comprised of interest and indexation (inflation compensation) calculated based on the Consumer Price Index (CPI). Central Bank rules on the indexation of deposit accounts, based on the Act on Interest and Price Indexation, specify that: “On the first day of each month the principal, which has remained unmoved for the past month, shall have changed by the same proportion as the CPI, regardless of whether this is an increase or a decrease."

Answer: Inflation is defined as a general increase in the price level. Price rises limited to a certain product or a general price rise over a short period only is not considered inflation.

Answer: Deflation is the same phenomenon as inflation, only negative. Deflation is defined as a general decrease in the price level. Falling prices over a short period do therefore not constitute deflation. If the prices of one or few products fall in isolation without affecting general price levels, this is not considered deflation.