Meginmál

Pensions

It is a good idea to consider your pension rights immediately at the beginning of your working life. Pension funds pay life-long old-age pensions after retirement, the payments are made from mutual insurance funds, on the one hand, and private pension savings, on the other. The amount of the pension payments is determined by the premiums paid during the working life as well as the return on the fund. Detailed information on pension matters can be found at https://www.lifeyrismal.is/en

Pension funds

  • The function of pension funds is to receive fund members' contributions, generate returns on them and pay pensions.
  • The pension fund pays you a retirement pension for the rest of your life, loss of income due to accident or illness (disability pension) and pays your spouse and children a pension if you pass away (spouse and child pension).
  • In Iceland, all wage earners and self-employed persons between the ages of 16 and 70 are required to secure pension rights by joining a pension fund.
  • The choice of a pension fund is in many cases bound by a collective agreement or special legislation. If the collective agreement does not specify a pension fund, you can select a pension fund in accordance with the rules of individual funds.
  • It is important to familiarise oneself with information about the rights that accumulate in your pension fund.
  • Take a look at www.lifeyrismal.is/en where you will find useful information about pension matters.

Mutual insurance

  • In Iceland, what is known as a mandatory mutual insurance system is in force. All employees and self-employed individuals between the ages of 16 and 70 are required to pay a 15.5% contribution of their total wages to the pension fund.
  • The premium is divided between the employee and the employer, with the employee paying 4% and the employer a minimum of 11.5%.
  • By paying premiums into a mutual insurance system, fund members join to guarantee each other a pension for the rest of their lives.
  • The mutual insurance protects fund members and their families against loss of income due to disability or death. 
  • Pension rights in mutual insurance funds are not inherited.
  • Pension rights in mutual insurance funds provide insurance for pension payments until the end of life, as well as rights for disability, spouse and children's pension payments.
  • Children’s pension is paid to children under the age of 18, if either parent has died or is a recipient of an old-age, disability or rehabilitation pension.
  • A spouse’s pension is paid to the surviving spouse of a deceased fund member.

Additional pension savings

  • Employees and the self-employed can choose to pay up to 4% of their total salary into additional pension savings.
  • Employers pay 2% of the employee's wages as a counter contribution in addition to what the employee pays him/herself.
  • Additional pension savings are inherited in full.
  • Additional pension savings are available for withdrawal at the age of 60 and can therefore make it easier for people to retire earlier.
  • If a person becomes bankrupt, creditors cannot file claims against the additional pension savings.
  • You have to make an agreement with the pension savings custodian and choose an investment strategy.
  • When withdrawing additional pension savings, you will have to pay income tax on it, so your personal tax allowance can be used to reduce the tax.
  • Additional pension savings are advantageous savings, since the employer's counter contribution increases the savings.
  • If you start paying additional pension savings early, interest accrues and can become the biggest part of your savings.
  • Additional pension savings can be withdrawn if a sudden illness or accident causes a loss of work capacity.
  • Additional pension savings can be used tax-free to pay mortgage loans of up to ISK 500,000 per year for an individual and ISK 750,000 for married couples and co-habitants for residential housing for own use. This authorisation is valid until 31 December 2024.
  • When buying your first apartment, you may use additional pension savings to pay off a loan for 10 consecutive years for up to a maximum of ISK 5,000,000.
  • When buying your first apartment, you may use additional pension savings to save for a down payment of up to ISK 500,000 per person based on a 12-month period.
  • The disposition of additional pension savings does not affect other resources, e.g. housing benefits, child benefits, interest rebates and unemployment benefits.

Specified additional pension savings

  • Employees and the self-employed can allocate up to 3.5% of the minimum premium to a specified additional pension savings.
  • If nothing is selected, the premium will automatically be paid into the mutual insurance department.
  • You have to make an agreement with the pension savings custodian and choose an investment strategy.
  • The specified additional pension savings can be withdrawn 5 years before the retirement age, which is usually 62 (67 being the standard retirement age).
  • It is possible to use the specified additional pension savings tax-free for the purchase of a first property if certain conditions are met.
  • A specified additional pension savings is inherited by the surviving spouse and children like other additional pension savings.
  • The accrual of rights to a lifelong old-age pension or disability and spouse's pension is not calculated on the specified additional pension savings.