According to Icelandic law, everyone aged 16–70 both employees and self-employed must pay pension contributions on their taxable income.
This mandatory system ensures that all workers build up pension rights throughout their careers.
Starting to work in Iceland
When you start working in Iceland you have to select a pension fund. You can also choose to add a contributions to personal pension savings. Payments to pension funds are deducted from your wages, at least 4% per month. Your employer also makes a contribution to both your pension fund and your personal pension savings.
All employees from the ages of 16 to 70 are legally bound to pay 4% of their gross wages into a pension fund. The employer pays a contribution of 11.5% of gross wages.
You won't collect a specific balance on an account, as is the case with personal pension savings, but instead you get a guarantee for lifelong pension payments from the time you begin to draw your pension. You will receive payments reflecting your contributions throughout your working life and the return on the fund's investments through those years.
In addition to a lifelong pension you earn the right to a disability pension if your capacity for work is significantly reduced. You also earn the right for your spouse/partner to receive a spouse's pension upon your death and for your children to receive a child's pensions if your capacity for work is significantly reduced or you die.
Why do I have to pay into a pension fund?
What do I get from paying into a pension fund?
By paying into a pension fund, you gain important financial protection:
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Old-age pension when you retire.
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Disability pension if you become unable to work due to illness or injury.
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Spouse/partner‘s pension for your spouse if you pass away.
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Children pension if you become unable to work due to illness or injury or if you pass away.
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Eligibility to apply for housing loans for those who have contributed to the fund.
Pension contributions are not only a legal requirement they are an investment in your long-term financial security and provide valuable benefits for you and your family.
I have two jobs. Do I need to pay into a pension fund for both jobs?
Yes. In Iceland pension contributions must be paid from all of your taxable income. This means that if you have two jobs each employer must pay pension contributions based on the wages they pay you.
Can I change my pension fund?
Yes, in some cases but you do not always have a choice. Which pension fund you pay into depends on your wage agreement. If the agreement does not specify a fund, or if your employment contract is not based on a wage agreement, you may be able to choose your pension fund, depending on the rules of the individual funds.
If you work for the Icelandic government or a municipality, you do not have a choice.
Can I move my pension rights from one pension fund to another?
You can not move your mandatory pension rights from one pension fund to another. The pension right you have already earned must stay in the fund where they were earned.
However, you can transfer your personal pension savings.
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Mandatory pension rights can not be moved
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Personal Pension Savings can be moved
Why am I paying so much into the pension fund?
The total pension contribution in Iceland is 15,5% of your wages. How much you pay depends on wheter you are an employee or self-employed.
If you are an employee:
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You pay 4%
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Your employer pays 11,5%
If you are self-employed:
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You pay the full 15,5% yourself, because you are both the employee an the employer.
About Working in Iceland
When you start working in Iceland you have to select a pension fund. You can also choose to add contributions to personal pension savings. Payments to pension funds are deducted from your wages, at least 4% per month. Your employer also makes a contribution to both your pension fund and your supplementary pension savings.