Q&A

Welcome to the website of The Icelandic Pension Funds Association.

Below is an english translation of frequently asked questions on pension savings and above you find the main subjects.

Additional pension savings

  • Can I use additional pension savings to pay off my fund member loan?

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

    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.rsk.is

  • What are the main advantages of additional pension savings?

    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    Income tax is paid when deposits are withdrawn.

  • Can I use the additional pension savings if my capacity to work is impaired or if I become unemployed?

    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.

  • Must I apply to make withdrawals from my personal pension fund, or will it be paid out automatically when I reach a stipulated age?

    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.

  • Do the additional pension savings affect the old-age pension paid by social security?

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

  • Is it advisable to exercise your right to accumulate additional pension savings?

    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%.

  • Does is make a difference where I keep my additional pension savings?

    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.

  • What rules apply to additional pension savings?

    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%.

  • When may I start withdrawing additional pension savings?

    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.

  • Where can I make an agreement on such additional savings?

    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.

  • Will additional pension savings be inherited?

    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.

  • Will pension payments suffice to ensure my unchanged income upon retirement? Do I need to save more for the pension years?

    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.

  • What tax regulations apply to additional pension savings?

    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.

  • How are additional pension savings utilised in purchasing a first apartment?

    First-time buyers can use additional pension savings to save for a down payment, make payments on a loan or both make loan payments and lower the burden of payment off un-indexed 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 rsk.is

Disability pension

  • Am I also entitled to a disability pension from the social security system?

    The social security system will also pay a disability pension. See further the website of the Social Insurance Administration, www.tr.is.

    The disability pension paid by the social security system may affect the disability pension paid by the pension funds. When calculating whether a fund member has suffered an income reduction due to impaired working capacity, consideration is given to earned income from work, payments by the social security system and pension funds and contractual payments.

  • Am I entitled to a disability pension from my pension fund if I need to be absent from work due to the illness of a family member?

    No

  • Am I entitled to payments if I am injured or become seriously ill?

    If you are injured or become seriously ill, and this impairs your working capacity, or causes a loss of income, you may be entitled to a pension.

    This decision is decided by a loss of income of at least 50% (40% at some funds) and you have been paying into a pension fund for at least two years.

    The first three years consider the fund member’s loss of work capacity, based on the work to which membership in the pension fund is related. After this period, the standard shifts to work capacity for all general jobs even though the member cannot do the job he did before the illness or accident. Therefore, this cancels the right to disability if the fund member can do all general jobs.

    A right to a disability pension may require a fund member to engage in rehabilitation. This also pertains to the start of disability and to later reassessment.

  • How long will pension funds pay a disability pension?

    A disability pension is paid until the fund member has reached pensionable age. At this point, it will change to an old age pension. However, a disability pension will be cancelled if the fund member regains full working capacity or does not suffer any reduction of income due to his/her impaired working capacity.

  • How much disability pension will I be entitled to if I cannot work due to illness or accidental injury?

    The amount of a disability pension depends on the rights a fund member has acquired in the fund. Fund members may be entitled to additional rights, based on payments they would have made if they had paid their contributions up to their pensionable age.

    Rights to which a fund member is entitled, in addition to his/her acquired rights, are called extrapolated rights. To have such rights, the fund member must have paid into the pension fund for at least four consecutive years. In addition, during this period he must have made payments for at least six of the 12 months prior to his/her loss of working capacity.

    The right to extrapolation depends on the loss of working capacity not being dueto the abuse of alcohol, medications or narcotics. If this is the case, the amount of the disability pension shall be limited to the accumulated rights.

  • Will our children be entitled to a pension in the event we become seriously ill or suffer an accident?

    Yes. In general, the amount of the child allowance does not depend on the fund member’s wages. Rather, it is a fixed amount which will change in keeping with the rise in the Consumer Price Index (CPI). If a fund member is receiving a disability pension, it will, in addition to any child allowance, never exceed the loss of income which the fund member has verifiably suffered due to his/her disability.

  • Will the pension fund assist me if I become unemployed?

    No. Pension funds do not pay a pension due to unemployment.

  • Will a pension fund pay me a disability pension if I have not suffered any reduction of income due to my disability?

    No, the condition for the payment of a disability pension is that the pension member has suffered a reduction in income due to an accident or a long-term illness. In the calculation of the reduction in income, consideration is given to earned income from work, payments by the social security system and pension funds and contractual payments.

Foreign nationals

  • Can I get a refund of paid-in contributions if I leave the fund?

    No, refunding contributions to Icelandic citizens is not permitted, whether they are in coinsurance funds or are additional pension savings.

    Earned rights are preserved for the fund or funds you have paid into. When the time comes for pension payments, you must apply for them.

    When foreign nationals leave Iceland, they may be entitled to a refund of their contributions, providing they are nationals of countries outside the European Economic Area (EEA) and are moving permanently out of the EEA.

  • Are foreign nationals obliged to pay into pension funds?

    Under the Pension Fund Act, foreign nationals being paid wages in Iceland shall pay into a pension fund under the same regulations as Icelandic nationals. An exception to this is when a foreign national within the European Economic Area (EEA) is employed by a foreign company for a limited time and is in possession of an E 101 Certificate issued by his/her home country. Then, he/she enjoys the same insurance as the social security legislation of his/her home country stipulates.

  • What happens to the contributions paid by foreign nationals when they return to their home country?

    It is not permitted to refund contributions to foreign nationals within the European Economic Area (EEA). This is according to an agreement between the member states of the EEA on the application of social security regulations those who move between the member countries.

    Refunds of contributions to foreign nationals of countries outside the EEA are authorised when they move from Iceland. Both the contributions of the fund member and the employer will be refunded without interest but with adjustment for indexation. If the fund member has acquired the right to extrapolated calculation of disability (usually after 3 years), the refund ratio may be reduced.

Half-pension

Authorisation to take a 50% pension from the Social Insurance Administration (SIA) and a 50% pension from pension funds at age 65. Authorisation to take a half-pension from SIA depends on the persons involved taking a half-pension from their own pension funds. The combined rights from pension funds must also equal at least the full old-age pension from SIA. You can find information on the right to take a half-pension from SIA on its homepage www.tr.is. Payments of half-pensions are scheduled to start on 1 September 2018.

    Mandatory Pension Funds

    • Can I get a refund of paid-in contributions if I leave the fund?

      No, refunding contributions to Icelandic citizens is not permitted, whether they are in coinsurance funds or are additional pension savings.

      Earned rights are preserved for the fund or funds you have paid into. When the time comes for pension payments, you must apply for them.

      When foreign nationals leave Iceland, they may be entitled to a refund of their contributions, providing they are nationals of countries outside the European Economic Area (EEA) and are moving permanently out of the EEA.

    • Am I able to choose a specific pension fund?

      Everybody is obligated to be a member of the pension fund which is referred to in their wage agreement or contract of employment. In case a new wage agreement applies to the occupation in question, or the contractual terms of employment are not based on a specific wage agreement, the individual shall be able to choose his/her pension fund depending on the regulations of such funds.

    • Is it possible to obtain loans from pension funds?

      Most pension funds grant loans to their fund members against a mortgage subject to specific conditions being met. The credit terms of loans to fund members are, generally, very competitive, making fund member loans a good option for those who need long-term loans, e.g. for buying real property.

    • What do I gain by paying into a pension fund?

      By paying into a pension fund, fund members earn the following rights.

      • Old age pension to the end of their lives.
      • Disability pension upon the loss of employment due to accidents or illness.
      • Pension to the surviving spouse upon the death of their spouse, generally a temporary pension (3 to 5 years), while some pension funds will pay a pension to surviving spouses to the end of their lives.
      • Payments for surviving children upon the disability or death of the fund member.

      The chief objective of pension funds is to pay old-age pensions to the end of their fund members’ lives. As the payment of old age pensions generally constitutes the biggest portion of the fund members’ income during their retirement years, pension fund rights are very important.

    • Why am I obliged to pay into a pension fund?

       Iceland operates an obligatory coinsurance system, according to which all wage earners and those who are self-employed, from 16 to 70 years of age, must pay into a pension fund a contribution amounting to 4% of their total wages.

      Your wage payer will pay a contribution amounting to at least 8% of your total wages.  However, in most instances, the wage payer’s contribution amounts to a higher proportion of your wages.

      Fund members are all those who are paying, or have paid, a contribution into the pension fund in question. The function of pension funds is to ensure for their fund members old-age pension for the rest of their lives, in addition to protecting them and their families against the loss of wages due to disability (disability pension and payments to surviving children) and death (pension to the surviving spouse and payments surviving children).

       

    • Can people inherit pension fund rights?

      No. Mandatory pension funds rights provide life-long pension payments, in addition to disability, spousal and child allowances. On the other hand, private pension savings or Additional pension savings pass to a surviving spouse and children.

    Moving to another country

    • Can I get a refund of paid-in contributions if I leave the fund?

      No, refunding contributions to Icelandic citizens is not permitted, whether they are in coinsurance funds or are additional pension savings.

      Earned rights are preserved for the fund or funds you have paid into. When the time comes for pension payments, you must apply for them.

      When foreign nationals leave Iceland, they may be entitled to a refund of their contributions, providing they are nationals of countries outside the European Economic Area (EEA) and are moving permanently out of the EEA.

    • Can I lose rights by moving from one country to the other?

      The right to the so-called extrapolated calculation of a disability pension is cancelled one year after such a move, in addition to a child allowance. In the event a fund member has obtained the right to extrapolated calculation upon moving away from Iceland, it will take six months to reinstate such rights after restarting contributions.

    • If I work in another country, am I obliged to pay into a pension fund there?

      This depends on the laws and regulations in the relevant countries. It is important to acquaint yourself well with the rules of the country where you live, and whether it may be necessary to obtain additional insurance.

    • What happens when I stop paying into a pension fund in Iceland, e.g., because of studies or residence in another country?

      You keep earned rights, but you lose the right to extrapolated calculation of a disability pension. It may therefore be advisable to consider additional insurance.

       

    • If I work in another country, can I elect to pay into an Icelandic pension fund?

      This is possible, but because of tax rules, it generally does not generally pay to make contributions to a pension fund in Iceland while living in another country. In Iceland, you can deduct contributions from taxes, and you then pay income tax on withdrawals from a pension fund. There is therefore a certain risk of double taxation.

    Old-age pension

    • Must I apply for a pension?

      Yes, you must apply for a pension from the pension funds. In the event a fund member has the right to a pension, it is sufficient to apply for a pension to the pension fund into which a contribution was paid last or to the fund in which the fund member has the most rights. The fund will then forward the application to the other funds.

    • Does financial income influence the amount of the pension payments from the pension funds?

      No. The rights  which you have acquired through payments into pension funds will not decrease even if you receive other income after your retirement, e.g., wages, financial income or rental income.

      On the other hand, other income can affect payments from the social security system. All income comes into play, including payments from pension funds. Payments from pension funds may reduce payments from the Social Insurance Administration, www.tr.is

    • Does a spouse's income affect the amount of pension from pension funds?

      No, pension fund payments do not depend on anything except a fund member’s paid contributions into pension funds. 

    • Can married couple and cohabitants divide pension rights?

      Yes, it is possible to divide old-age pension rights, but not disability pensions, surviving spouse pensions and child allowances. The division of pension rights applies only to those who are currently or have been in legal or common-law marriage. Such division of pension rights shall involve a mutual division which is commensurate, i.e. each party to a legal or common-law marriage shall grant the other party rights equal to their own. Therefore, both parties need to divide their pension rights.

      It is permitted to assign to the other party up to one half of pension rights

    • What is the difference between a pension from the social security system and from the pension funds?

      Your rights in pension funds are decided by the contributions you have paid into them during your working life.

      The social security system ensures a minimum pension for everybody.

      All working individuals are obligated to be members of a pension fund and pay into it a specific percentage of their wages.

      Wage payers make a matching contribution for each worker to these pension funds. In case an individual has paid very little or nothing into a pension fund, the social security system accepts the responsibility through higher payments.

      Further information on social security is to be found on the website of the Social Insurance Administration, www.tr.is 

    • When can I start to receiving a pension from a pension fund?

      While this varies somewhat between funds, the general rule is that you can begin drawing your pension between the ages of 62 and 70. In some instances, pension payments are allowed even earlier, i.e., at age 60. The pension will then be paid monthly in equal amounts for the rest of your life. While the reference age may vary between the pension funds, most of them use 67 years of age as their reference.

      It is possible to bring forward or postpone the payment of a pension, most often as of 62 years of age, while several funds provide no upper limits on the age limit how long the payment of the pension can be postponed. The monthly payment will decrease or increase, depending on whether pension payments begin earlier or later. If a fund member starts pension payments earlier, he/she will receive a lower payment per month during a presumably longer period. However, if he/she postpones payments of a pension, he/she will receive higher monthly payments for a presumably shorter period.

      Thus, how long a fund member lives determines whether it is an advantage or a disadvantage to start receiving pension payments earlier or later.

    • Can I get a refund of paid-in contributions if I leave the fund?

      No, refunding contributions to Icelandic citizens is not permitted, whether they are in coinsurance funds or are additional pension savings.

      Earned rights are preserved for the fund or funds you have paid into. When the time comes for pension payments, you must apply for them.

      When foreign nationals leave Iceland, they may be entitled to a refund of their contributions, providing they are nationals of countries outside the European Economic Area (EEA) and are moving permanently out of the EEA.

    • Do I get an old-age pension from the social security system even if I have earned rights in pension funds?

      Payments from pension funds can affect social security rights. Interaction with the social security system can be very complicated since pension payments and financial income can reduce payments from the social security system.

      For further information on rights of the social security system, contact the Social Insurance Administration,  www.tr.is.

    My pension fund

    • Do I really have to attend meetings and seminars of my pension fund? Shouldn’t I make better use of my time?

      You should attend annual general meetings and pay attention to the operations and performance of the fund. These are important rights which require following like other assets. Some pension funds also invite their members to attend seminars on pension matters. Attending such seminars can prove to be very useful to attend such seminars to keep up with pension matters and thus be better prepared to assess whether your rights are adequate.

    • Must I monitor whether my wage payer pays its contributions to my pension fund?

      Your pension fund will send you a statement of contributions twice a year. You should compare this to your pay slips. If any payments are missing, you should contact your wage payer and request an explanation or contact your pension fund and ask the fund to collect the unpaid contributions. Pension rights are based on paid contributions.

      Most pension funds also offer their members access to protected websites containing information on contributions and rights. Request access to this information so you can monitor contributions and rights at your convenience.

    • Is it possible to obtain loans from pensions funds?

      Most pension funds grant loans to their fund members against a mortgage, subject to specific conditions being met. The credit terms of loans to fund members are, generally, very competitive, making them a good option for those needing long-term loans, e.g., for buying real estate.

    • Can I choose the pension fund into which I pay?

      Membership in a pension fund depends on which wage agreement and/or special act applies. If your wage agreement does not cover the occupation in question, or if your contract of employment is not based on a wage agreement, you will be able to choose your pension fund, depending on the regulations of the individual funds.

      The regulations of some pension funds do not allow everybody to be a member. This, for example, is the case for the Pension Fund for State Employees (LSR).

    • Can I get a refund of paid-in contributions if I leave the fund?

      No, refunding contributions to Icelandic citizens is not permitted, whether they are in coinsurance funds or are additional pension savings.

      Earned rights are preserved for the fund or funds you have paid into. When the time comes for pension payments, you must apply for them.

      When foreign nationals leave Iceland, they may be entitled to a refund of their contributions, providing they are nationals of countries outside the European Economic Area (EEA) and are moving permanently out of the EEA.

    • Am I obligated to pay into a pension fund?

      Yes, by law all wage earners, as well as those who are self-employed, are obligated to ensure their pension rights by being a member of a pension fund. This obligatory membership lasts from age 16 to 70.

    • Are foreign nationals obliged to pay into pension funds?

      Under the Pension Fund Act, foreign nationals being paid wages in Iceland shall pay into a pension fund under the same regulations as Icelandic nationals. An exception to this is when a foreign national within the European Economic Area (EEA) is employed by a foreign company for a limited time and is in possession of an E 101 Certificate issued by his/her home country. Then, he/she enjoys the same insurance as the social security legislation of his/her home country stipulates.

    • How much am I obligated to pay into a pension fund?

      The minimum mandatory contribution to a pension fund is 12% of total wages from age 16 to 70. Wage agreements cover payments into pension funds. The general rule is that the wage earner pays 4% of his/her total wages, and the matching contribution of the wage payer has been increasing. The goal is that it will be 11.5%, bringing the total contribution to 15.5%. This applies equally to state and municipal civil servants.

      The foregoing describes the general rule, but there are exceptions to it, such as for bank employees and employees in older state and municipal pension systems.

    • I cannot recall which pension funds I have paid into during my life. Is there any chance that any payments would be lost or forfeit?

      Rights are not forfeit even though the statements have been lost. You can contact any of the pension funds to which you have belonged and obtain a password to the fund members’ website where you will find a statement showing all the pension funds you have paid into.

      You can also review your overall rights in coinsurance funds at The Pension Portal. Pension fund members have access to the Pension Portal on the websites of the pension funds, using the same password as for the fund members’ website in question. 

    • What do I gain by paying into a pension fund?

       By paying into a pension fund, fund members earn the following rights.

      • Old age pension to the end of their lives.
      • Disability pension upon the loss of employment due to accidents or illness.
      • Pension to the surviving spouse upon the death of the fund member, generally a temporary pension (3 to 5 years), while some pension funds will pay a pension to surviving spouses to the end of their lives.
      • Payments for surviving children upon the disability or death of the fund member.

      The chief objective of pension funds is to pay old-age pensions through the end of their fund members’ lives.

      As the payment of old age pensions generally constitutes the biggest portion of the fund members’ income during their retirement years, pension fund rights are very important.

    • What happens to the contributions paid by foreign nationals when they return to their home country?

      It is not permitted to refund contributions to foreign nationals within the European Economic Area (EEA). This is according to an agreement between the member states of the EEA on the application of social security regulations those who move between the member countries.

      Refunds of contributions to foreign nationals of countries outside the EEA are authorised when they move from Iceland. Both the contributions of the fund member and the employer will be refunded without interest but with adjustment for indexation. If the fund member has acquired the right to extrapolated calculation of disability (usually after 3 years), the refund ratio may be reduced.

    • I am self-employed. When am I supposed to pay into a pension fund?

      Pension fund contributions are to be paid monthly. They are due by the 10th day of the month following the month for which wages have been paid. Note, however, you have till the last day of the month to pay a contribution. After that, penalty interest begins accruing from the due date (the 10th day month).

    • Who monitors the payment of contributions into pension funds?

      The Directorate of Internal Revenue monitors the payment of pension contributions by comparing information provided by the pension funds to the paid-in contributions with information provided on the tax returns of wage earners and the self-employed.

      Pension funds send each fund member a statement of the contributions received on his/her behalf. Delivering such statements in electronic form is permitted if the fund member requests it.

      Fund members ought to check that the mandatory contributions are being paid on their wages. For the Wage Guarantee Fund to cover the contributions of a wage earner, he/she must verify the wage payer’s submission of them to the pension fund within 60 days from the date of the statement.

      If contributions are missing from the statement, it is important that the wage earner notify the Wage Guarantee Fund of this by submitting their pay slips within 60 days.

      Pension rights are exclusively based on paid contributions.

    Purchase of first apartment

    • How are additional pension savings utilised in purchasing a first apartment?

      First-time buyers can use additional pension savings to save for a down payment, make payments on a loan or both make loan payments and lower the burden of payment off un-indexed 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 rsk.is

    • Is there a maximum amount?

      Yes, the maximum amount per individual is ISK 500,000 per year, for a continuous period of 10 years.

    • Do I utilise additional pension savings only for the down payment?

      No, you can also utilise additional pension savings to pay off a loan or both pay off a loan and lower the payment burden of unindexed loans.

    Rights

    • Will the pension fund assist me if I become unemployed?

      No. Pension funds do not pay a pension due to unemployment.

    • Can I get a refund of paid-in contributions if I leave the fund?

      No, refunding contributions to Icelandic citizens is not permitted, whether they are in coinsurance funds or are additional pension savings.

      Earned rights are preserved for the fund or funds you have paid into. When the time comes for pension payments, you must apply for them.

      When foreign nationals leave Iceland, they may be entitled to a refund of their contributions, providing they are nationals of countries outside the European Economic Area (EEA) and are moving permanently out of the EEA.

    • Am I covered by some minimum rights of the pension fund?

      Pension fund rights depend on the contributions paid into the fund.

      Under law, pension funds ought to ensure a minimum pension, amounting to 56% of the wages, of which a contribution is paid into a pension fund for a monthly pension for the rest of your life, assuming contributions have been paid for 40 years. The same minimum applies for a disability pension. However, a pension to the surviving spouse shall be 50% of the minimum insurance cover. Child allowances are usually a fixed amount and do not depend on the fund member’s wages. Many pension funds grant more rights than the minimum insurance cover stipulated by law, as either coinsurance or a private fund.

    • Are pension payments indexed?

      Yes, pension payments are indexed. Most pension funds alter the amount of the pension according to changes in the Consumer Price Index (CPI). Some pension funds calculate pensions as a proportion of wages, thus being raised consistent with pay raises.

    • Do rules and rights differ from one pension fund to another?

      Rights vary between pension funds. The Pension Fund Act stipulates the minimum insurance cover of pension funds. Most pension funds operate websites containing information on the rights they are providing. The most detailed information on rights is contained in the articles of association of the pension fund in question.

    • Does the membership in pension funds grant any rights other than to a pension?

      Most pension funds grant to their members loans on all favourable terms against a mortgage in real estate. Credit regulations and terms vary between funds.

    • Having paid into more than one pension fund, can am I get information about my rights from one location?

      Yes, you can contact any of the pension funds into which you have paid and obtain a password to the fund members’ website. There you will find a statement showing all the pension funds into which you have paid.

      In addition, you can view all your rights by visiting the Pension Portal. Pension members can access them on the Pension Portal on the websites of the pension funds, using the same password as for the website of the pension fund in question.

      When the time comes to receive a pension, it is sufficient to apply to one fund since there is a special agreement on relations between the pension funds. Generally, application is made to the fund into which a contribution was last paid, and then the application will be forwarded to the other funds.

    • Is it possible I might lose some rights by moving from one country to the other?

      The right to the so-called extrapolated calculation of a disability pension is cancelled one year after such a move, in addition to a child allowance. In the event a fund member has acquired the right to the extrapolated calculation upon a move from Iceland, it will take six months to reinstate such rights from the start of renewed contributions.

    • Is it possible to transfer rights between pension funds when I start receiving pension payments?

      Pension rights are not transferable between the funds. Pension funds have special rules on communications amongst themselves.

      When it comes to start receiving a pension, it is sufficient to apply to the fund into which a contribution was last paid, and it will break forward the application to other funds into which contributions have been paid.

    Social security

    • Can I decide not to buy life insurance if I am paying into a pension fund?

      New fund members with children to support and with significant financial obligations should seriously consider buying additional insurance to protect their family from loss of income if misfortune strike. A life insurance policy can be crucial upon death to protect the family against the loss of income if the fund member dies. At death, a pension for the surviving spouse will be paid by the pension fund until the youngest child has reached the age of 18 (some pension funds make payments for surviving children for a longer period).

      The rights during the first three years of contributions to a pension fund are often insubstantial since there is no right to extrapolation. It is therefore important to assess the need for additional insurance, such as life insurance and medical cost insurance

    • Do I need to buy insurance to protect myself against the loss of income due to accidents or illness if I am paying into a pension fund?

      In general, it takes new fund members three years to acquire the right to a full disability pension. This means that young people who are starting work in the labour market have no disability insurance during their first years. This is bad, considering that these are the years when people are starting a family and setting up their home. Therefore, it would be sensible for new fund members to buy their own disability insurance.

    Specified additional pension savings

    • What are “specified additional pension savings”?

      CIL and SA’s wage agreements of January 2016 raised employers’ contribution to pension funds on the general labour market in steps to 3.5%. Fund members may elect to pay this additional contribution into “specified additional pension savings”.

      This does not involve “regular” additional pension savings, and fund members must make their own informed decisions on whether they want to take this course. If no choice is made, the contribution will go into a co-insurance department and thereby increase pension rights.

    • Who is entitled to “specified additional pension savings”?

      Everyone working on the general labour market and covered in the January 2016 wage agreement of CIL and SA.

    • How are “specified additional pension savings” different from “regular” additional pension savings?

      • You can begin receiving “specified additional pension savings” five years before the traditional pension age. You can begin receiving other additional pension savings when you turn 60.
      • You cannot use “specified additional pension savings” to save tax-free to purchase a dwelling word to pay off tax-free housing loans.
      • When a fund member dies, “specified additional pension savings” pass to a surviving spouse and children, like other additional pension savings.

      In both instances, fund members can choose their yield programme.

    • Do “specified additional pension savings” effect disability and surviving spouse pensions?

      Yes. The disposition of contributions to “specified additional pension savings” do not, regarding those contributions, earn rights to lifelong pension payments, disability and surviving spouse pensions with extrapolation.

    Supervision and maintenance

    • Can I get a refund of paid-in contributions if I leave the fund?

      No, refunding contributions to Icelandic citizens is not permitted, whether they are in coinsurance funds or are additional pension savings.

      Earned rights are preserved for the fund or funds you have paid into. When the time comes for pension payments, you must apply for them.

      When foreign nationals leave Iceland, they may be entitled to a refund of their contributions, providing they are nationals of countries outside the European Economic Area (EEA) and are moving permanently out of the EEA.

    • I cannot recall which pension funds I have paid into during my life. Is there any chance that any payments would be lost or forfeit?

      Rights are not forfeit even though the statements have been lost. You can contact any of the pension funds to which you have belonged and obtain a password to the fund members’ website where you will find a statement showing all the pension funds you have paid into.

      You can also review your overall rights in coinsurance funds at The Pension Portal. Pension fund members have access to the Pension Portal on the websites of the pension funds, using the same password as for the fund members’ website in question. 

    • Do I have to do anything specific when I start paying contributions into a pension fund?

      You should immediately familiarise yourself with how rights accrue in your pension fund. How will your pension rights accrue, and what will they be at retirement? What disability payment will you receive if you become disabled due to an accident or illness? What pension will be paid to your close relatives upon your death?

      Contact your pension fund and check these points.

      All pension funds have a website with information on the rights they provide.

    • Do I really have to attend meetings and seminars of my pension fund? Shouldn’t I make better use of my time?

      You should attend annual general meetings and pay attention to the operations and performance of the fund. These are important rights which require following like other assets. Some pension funds also invite their members to attend seminars on pension matters. Attending such seminars can prove to be very useful to attend such seminars to keep up with pension matters and thus be better prepared to assess whether your rights are adequate.

    • Must I monitor whether my wage payer pays its contributions to my pension fund?

      Your pension fund will send you a statement of contributions twice a year. You should compare this to your pay slips. If any payments are missing, you should contact your wage payer and request an explanation or contact your pension fund and ask the fund to collect the unpaid contributions. Pension rights are based on paid contributions.

      Most pension funds also offer their members access to protected websites containing information on contributions and rights. Request access to this information so you can monitor contributions and rights at your convenience.

    • How can I check on how the rights are accumulating in my pension fund?

      Check the statements on how your pension rights are generated and accumulating. Most statements also show what pension payments you will receive upon retirement, assuming continuing contributions. If it seems to you that the expected pension payments will not be sufficient, you need to increase your savings to achieve your objective. In addition, it is in your interest to begin saving as soon as possible.

      Most pension funds have a fund members’ website showing your paid contributions and rights.  You can check on your overall rights in coinsurance funds by accessing the Pension Portal, Lífeyrisgáttin.

      Pension fund members have access to the Pension Portal through the websites of the pension funds by using the same password as for their own websites.

    Surviving spous's pension and child allowance

    • Will our children be entitled to a pension in the event one of us dies?

      The fund member’s children and adopted children, are entitled to payments for surviving children until they reach 18 years of age (longer at some pension funds). A pension for surviving children is paid if the fund member paid into the fund for at least 24 of the last 36 months, or for six of the last 12 months, prior to the member’s death, has been receiving an old-age or a disability pension at death or obtained the right to extrapolation.

      Stepchildren and foster children will be entitled if they have verifiably been supported by the fund member.

      In general, the amount of the payments to the surviving children is not dependent on the fund member’s wages, rather being a fixed amount, which will change in keeping with the rise in the Consumer Price Index (CPI).

      The amount of the pension for the surviving children will be higher due to the fund member’s death than if he/she loses the capacity to work.

    • Does it matter whether my spouse is still working or has retired or is receiving a disability pension at death?

      No. The amount of the pension for the surviving spouse depends on the rights which the fund member has acquired before death, including other rights he/she has accumulated at the fund if he/she has been making contributions up to the age of 65 or 67 (extrapolated calculation).

      So as to accumulate the right to extrapolated calculation, the fund member will have to have kept making contributions to the pension fund for at least 24 months in the past 36 months, or 6 months in the past 12 months, before death.

    • Does the amount depend on the size of the family?

      If there are children living in the home, the surviving spouse will be paid a full surviving spouse’s pension until the youngest child turns 18 (for a longer period for some funds).

      Likewise, a child allowance will be paid if the fund member has been making contributions for at least 24 of the past 36 months, or 6 of the past 12 months, was entitled to an old-age or disability pension at the time of death, or has obtained the right to extrapolation.

      Stepchildren or foster children may have a right to a child allowance if the fund member has provably supported.

    • How long am I entitled to the pension for the surviving spouse?

      Full pension for the living spouse shall be paid for at least two years. Any extension depends on the conditions in the home and the regulations of the pension fund in question. Some pension funds pay a full or reduced pension to the surviving spouse for the rest of his/her life. However, this will be cancelled in the event the spouse remarries or becomes a cohabitant anew.

    • I am a homemaker and have never paid into a pension fund. Am I entitled to a portion of my spouse’s pension rights?

      Your spouse may assign to you up to half of his/her pension rights.

      When the fund member dies, the surviving spouse’s pension will be paid, whether or not the rights were divided. The full pension for the surviving spouse will be paid for at least two years. If the surviving spouse has children under 18 to support, the full surviving spouse pension will continue until the youngest child turns 18.  Some pension funds continue paying the pension for the surviving spouse.

      If the surviving spouse is an invalid when the fund member dies, and is under 67, the pension for the surviving spouse will continue for the duration of the disability.

      The pension for the surviving spouse will be cancelled if the spouse remarries or begins cohabiting.

    • In the event of the death of my spouse, will I receive pension from his/her pension fund?

      Yes. A pension to the surviving spouse is paid to the surviving spouse upon the death of the fund member. A full pension for the surviving spouse will be paid for at least two years. If the surviving spouse has children under 18 years of age, a full pension for the surviving spouse will be paid until the youngest child has reached 18 years of age (longer for some funds). If the surviving spouse is an invalid at the death of the fund member, and is under 67 years of age, the full pension for the surviving spouse will be paid during the period of the disability.

      Some pension funds pay a full pension or a reduced pension for the surviving spouse, even for the rest of his/her life. However, it will be cancelled if the spouse marries someone or becomes a cohabitant. Please note that the surviving spouse is entitled to use the deceased’s tax card for 9 months as of the month of death.

    • My spouse has more income that I do. Are we allowed to share out our pension rights?

      Yes, spouses may share out their pension rights. The division must be mutual and equal. This means that a married couple or cohabitants shall transfer to the other party an equal portion of his/her rights.

      The authorization may cover up to one half of the pension rights. However, the division of pension rights between a married couple shall only cover the rights they have accumulated during the period they have been married or cohabiting.

      Here are the options for dividing pension rights:

      First, people may divide the pension payments already in progress.

      Second, they may divide accumulated pension rights can be divided, provided they do so before the fund member turns 65. 

      Third, they may divide future rights, i.e., pension rights accumulating after the division has been agreed.

      It is important to seek an adviser’s assistance at the pension fund prior to dividing the pensions to ensure that the gain from the division is clear beforehand.

    Taxation

    • What tax regulations apply to additional pension savings?

      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.

    • What tax regulations apply to contributions to a pension fund?

      A fund member can at most deduct 8% of his/her wages from taxable income, 4% for a contribution into a coinsurance fund and 4% for additional pension savings.

      Wage payers’ contributions are deductible before income tax is calculated. Thus, they are not deemed to be wage earners’ benefits.

      Income tax is calculated upon payment of the pension, as on other income.

    • Why do I have to pay taxes on my pension payments?

      While a pension is taxed as any other work income, pensioners can use their personal allowance to reduce their taxes. As pension contributions are being paid without being taxed into a pension fund, this avoids double taxation of a pension. Rights at pension funds are exempt from capital gains tax on interest income.

    Upon death

    • If my spouse dies, does it matter whether she/he is still working or has retired or has a disability pension?

      No. The amount of a surviving spouse’s pension depends on the rights that the spouse acquired before dying, in addition to the rights he/she had acquired from the fund if the fund member had paid contributions through age 65 or 67 (extrapolation).

      For the right of extrapolation to come into force, a fund member must have paid contributions into the pension fund for at least 24 of the previous 36 months and for six of the last 12 months before dying.

    • Are my additional pension savings inheritable?

      Upon death, additional pension savings go to the surviving spouse and children. The division is that a married spouse gets 2/3 of the additional pension savings and the children 1/3. The additional pension savings are divided even though the spouse stays in an unsettled estate. If the deceased was neither married nor had children, the balance of the additional pension savings are transferred into the deceased’s estate and goes to the heirs.

    • Do pension funds pay funeral costs?

      Pension funds do not pay funeral costs. They pay surviving the spouse’s pension and children’s allowances.