Pension
The Fund pays two types of pension:
- savings pension
Old age pension is a savings pension, as the fund member accrues pension rights until he/she starts receiving pension.
- risk pension
Disability, spouse's and children's pensions are in the risk pension category.
The amount of pension depends on contribution payments to the fund. When calculating disability and spouse's pension, the remaining years to the age of 65 are often taken into account.
Pension payments are inflation-protected and are adjusted monthly according to the Icelandic Consumer Price Index. Pension is paid monthly on the last weekday of each month into the pensioner's Icelandic bank account.
Pension payments are subject to income tax in the same way as earned income.
All individual taxpayers are entitled to a tax card stating the personal tax allowance, which reduces their income tax. Therefore, if the pensioner has an unused tax card, it is important to send it to the fund. Married or cohabiting couples can use 100% of the other spouse's unused tax card.
Age related rights
The Fund's pension rights are age-related, and are determined by the age of the Fund member when contributions were made.
Younger Fund members thus accrue more rights than older members for the same contribution, because the value of the contribution increases, the longer it has been invested in the fund. Linking entitlement to age also ensures equality between Fund members in their accruement of entitlement over their working life.
Equal accruement of rights
In equal accruement of rights, Fund members accrue the same entitlement for the same contribution, regardless of their age when the contribution is paid. Those Fund members who have accrued rights in the early part of their working life, under the system of equal accruement, can continue within this system up to a certain maximum. Contributions after that lead to accruement of entitlement in age-related accruement.
Example of pension rights
The table which can be accessed above shows annual age-related pension entitlement from the age of 67, for each ISK 10,000 of contribution paid to the fund each year.
Example: A Fund member who is 19 years old receives ISK 3,005 annual pension for each ISK 10,000 contribution paid during that year.
The table also shows annual pension entitlement for equal accruement, for Fund members for whom a reference contribution has been determined, and who can therefore continue to make contributions for equal accruement. Rights according to the table are calculated as the average of accrued rights from the ages of 25 to 64 years inclusive, or ISK 1,341 for each ISK 10,000 contribution.
Old age pension
Pension entitlement is the total of accrued and future rights.
Accrued rights are shown on the summary sent to Fund members twice a year. You can see your current accrued rights by accessing the Fund members' web, using the password that appears on your contributions statement, or by contacting the Pension Fund and requesting a statement to be sent to you.
Future entitlement can be estimated by using the pension calculator, on which you should enter your estimated future salaries. Pension entitlement is the total of accrued and future rights.
Payment of pension is assumed to commence at the age of 67 years.
The commencement of pension payments can be brought forward to the age of 65 years, and it can be delayed to the age of 70 years.
| Commencement of pension payments | |
|---|---|
| 65 years | 16.2% reduction |
| 66 years | 8.4% reduction |
| 67 years | 0 |
| 68 years | 8.2% increase |
| 69 years | 17.4% increase |
| 70 years | 27.8% increase |
The table indicates that an individual who starts to receive pension payments at the age of 65 years receives a pension 16.2% lower than one who first receives pension payments at the age of 67 years. If no pension is paid until the age of 70 years, the pension rises by 27.8%.
Disability pension
A fund member is entitled to a disability pension if he/she becomes unable to perform the work associated with his/her fund membership. The disability assessment must be at least 50% of the ability to perform the relevant work.
A disability pension of 100% is calculated in the same way as an old age pension. The fund member's rights are thus adjusted to the age of 65 on the basis on average rights for the last three years prior to the disability. Disability pension shall never exceed the fund member's loss of income.
For the first three years following the onset of the disability, the assessment is based on the fund member's incapacity to perform the work associated with fund membership. Thereafter, the disability assessment is based on the fund member's ability to perform general tasks.
Spouse's pension
A pension is paid to a spouse of a deceased fund member. A spouce's pension is also paid if the deceased fund member received old-age or disability pension.
A spouse is a person who was married to, or lived in recognized cohabitation or a confirmed union with the decease fund member at the time of death. The spouse either receives a standard spouse's pension or a pension equivalent to the value of the deceased fund member's inflation-adjusted contributions, depending on which is higher.
Standard spouse's pension
A spouse´s pension is paid for at least three years and longer if one of the following requirements is met:
- A lifelong pension is paid if the spouse is born before 1925. It gradually decreases if the spouse is born after 1925 and ceases if the spouse is born after 1945.
- The spouse supports a child under the age of 23 years.
- A disabled spouse receives a pension until the age of 67 years.
Spouse's pension is 60% of old age pension at the age of 67.
The fund member's rights are adjusted to the age of 65 on the basis on average rights for the last three years before death.
Spouse's pension as the value of inflation-adjusted contributions
The spouse can receive a pension equivalent to the value of the deceased fund member's inflation-adjusted contributions. This option can be a better choice than a standard spouse's pension if one of the following requirements is met:
- The spouse is born after 1940.
- The spouse doesn't support a child under the age of 23 years.
- The deceased fund member did not pay contributions to the fund for the last three years before death.
- The spouse is not disabled.
If the spouse remarries, establishes a union which may be equated with marriage, or enters a recognished cohabitation, the right to a spouse's pension ceases in both cases.
Children's pension
Children's pension is a over ISK 14,000 per month, and is paid until the child reaches the age of 20 years.
Children and adopted children of a deceased or disabled fund member are entitled to children´s pension. Foster children and step-children also receive pension if the fund member largely or fully supported them.
Children's pension is paid to the supporter of the child. After the child reaches 16 years of age, the supporter can reduce income tax on children's pension by using the child's tax card.