Additional pension savings

Only those buying an apartment for the first time can use additional pension savings to pay off loans (mortgage) or save for a down payment. They can also combine the two options to pay off loans (mortgages) and decrease the payment.

The maximum amount for everyone per year is ISK 500,000.

You may utilise additional pension savings to purchase your first apartment for a continuous period of 10 years.

You can apply for this on the website of the Directorate of Internal Revenue www.skatturinn.is

What are the main advantages of additional pension savings?

• Additional pension savings are private savings. They are an important addition to general mandatory pension savings.
• Such savings are convenient. The wage payer sees the paying the premiums.
• No financial income taxes paid on interest income.
• Withdrawals from it can begin at age 60, and you can take all deposits out in a lumpsum or over a longer period, as you choose.
• You save up to twice as fast as through traditional savings
• This is long-term savings, where interest can become most of the accumulated savings because of the effect of interest on interest.
• This helps people to quit working before 70 and is fully inheritable.
• When a pension fund member dies, the deposits, in addition to indexation and interest, are divided between the legal heirs and paid in accordance with certain rules.
• It is possible to draw on additional pension savings if there is a serious accident or illness that results in a reduction of work energy. The pension savings are then paid in accordance with certain rules.
• If an individual goes bankrupt, creditors can file claims against the additional pension savings.

Income tax is paid when deposits are withdrawn.

In the event serious accidents or long-term illness reduce your work capacity, you may draw on your additional pension savings. However, this is not the case if you become unemployed.

You must apply to make withdrawals from an additional pension savings fund. Withdrawals may start, whether in a lump sum or in separate payments when you reach 60 years of age.

Payments from additional pension savings will not influence the old-age pension and income maintenance from Social Security.

Yes, absolutely, as they contribute to better finances at retirement, and make it easier for people to stop working before the age of 70. Additionally, this can benefit you in the event of serious accidents or illness which impair your capacity to work.

Additional pension savings are the best type of savings available. Wage agreements contain a provision on wage payers contributing 2% of their employees’ wages as a complementary contribution to their additional pension savings, provided that the wage earner’s contribution amounts to at least 2%.

Choose your custodian carefully. Custodians generally offer various investment plans involving different investment policies.

It is important that you acquaint yourself well with the various choices before you decide where to invest your additional pension savings. Furthermore, it is imperative to obtain all the information on costs (initial costs, operating expenses, asset management costs).

If you become dissatisfied with the services and investment results, you can move to another custodian. However, doing so can entail costs, and is therefore even more important to acquaint yourself with matters from the start.

Wage earners and the self-employed are permitted to pay up to 4% of their total wages as contributions to additional pension savings. Most wage agreements contain a provision for wage payers to pay 2% of the wages of their employees as a matching contribution to their additional pension savings, providing the wage earner’s contribution amounts to at least 2%.

You may start withdrawing additional pension savings at the age of 60, and you may then withdraw the entire sum. You may also request to spread withdrawals over a longer period. Upon the death of a fund member, it is permitted to withdraw the entire amount of additional pension savings. Upon disability, the payments are spread over a longer period. However, a lump sum payment is permitted if the amount is low.

Pension funds, commercial banks, savings banks, securities companies and life insurance companies can offer additional pension savings. It is not sufficient to request the wage payer to start making additional pension savings payments. It is necessary to sign an agreement with the pension savings custodian.

If a wage earner starts working for a new employer, it is important to contact the pension savings custodian and sign a new agreement with the new wage payer.

As a fund member, you own your additional pension savings. At your death, the deposits, in addition to indexation and interest, will be divided under specific rules between your legal heirs.

Pension payments are usually not sufficient to ensure unchanged income when you retire. It is therefore desirable for everybody to make additional savings, and additional pension savings are the best form of savings to increasing your pension.

The same tax rules apply to contributions for additional pension savings as to pension fund contributions. The contributions are deductible from your tax base, thus reducing your taxes. However, pension payments are taxed, like any other income from work. Pensioners can therefore utilise their personal deductions to lower taxes.

First-time buyers can use additional pension savings to save for a down payment, make payments on a mortage loan or both make mortgage loan payments and lower the burden of a mortgage loans.

The maximum annual amount for everyone is ISK 500,000.

Additional pension savings may be utilised to buy a first apartment over a continuous 10-year period.

Application is made on the website of The Director of Internal Revenue skatturinn.is