Old age pension

In Iceland, all employees and self-employed individuals aged 16-70 pay a mandatory contribution to a pension fund; this contribution goes into a mutual insurance system. The contribution is a minimum of 15.5% of total wages and is usually split between the employee and the employer.

Mutual insurance means that fund members jointly contribute to ensuring each other a lifelong pension. The aim is also to protect fund members and their families against loss of income that may occur due to disability or death.

It is also possible to choose for a portion of this contribution to go into private savings; the most common is what is known as specified private savings, but some pension funds also offer flexible or restricted private savings.

Pension payments that people receive from this system, i.e. both mutual insurance and private savings, reduce the amount of old-age pension allowance from TR.

Payments that affect old-age pension allowance from TR:

Mutual insurance

Mutual insurance is part of the mandatory contribution and therefore affects the allowance from TR. You must apply for mutual insurance payments before applying for a pension from TR.

Flexible private savings, restricted private savings and specified private savings

Private savings are part of the mandatory contribution and therefore reduce the allowance from TR. However, there is no requirement to apply for flexible and specified private savings when applying for an old-age pension from TR, but there is a requirement to apply for restricted private savings.

Payments that do not affect old-age pension allowance from TR:

Additional pension savings

Additional pension savings, which some funds call private pension savings, also known as 4/2% savings, are voluntary savings in addition to mandatory contributions to a pension fund, where the employee pays 2% or 4% and the employer pays a 2% contribution. Withdrawing these savings has no effect on old-age pension allowance from TR, with one exception: those who receive supplementary payments for people with limited old-age pension rights must specify payments from additional pension savings in their income plan, because the amount of supplementary support is income-related and all income affects its calculation.