Make sure you have signed up for private pension

Private pension is optional but available to everyone working in Iceland. If you deposit 2-4% of your monthly salary into a private pension scheme your employer is obligated by law to give you an additional 2%. That alone probably makes it the best type of savings in Iceland but additionally it is fully inheritable, exempt from capital income tax as well as reduction of social insurance pension and cannot be accessed by creditors in case of bankruptcy.

Your private pension is therefore a valuable asset that you should take very seriously and sign up for, if you haven’t already. There is no age limit regarding the permission to deposit a part of your salary. As long as you are working you can deposit 2-4% of your salary and get the 2% additional payment from your employer. It is therefore possible to deposit and withdraw funds simultaneously.

When should I withdraw my pension?

Your personal circumstances are the most important factor when considering the best time to withdraw your money. At the moment, as a response to COVID-19, anyone younger than the normally required minimum age of 60 can now withdraw their private pension. Please read this article on the matter before deciding weather it is the right option for you:

• Article - Should you withdraw your private pension?

You should assess your total potential income from other pension funds and the Social Insurance Administration (TR) before you make any decisions.

Íslandsbanki can support you by offering you advice. Please feel free to contact our Investment and Pension advisors by telephone: 440-4900 or by email: sereign@islandsbanki.is

Some points for consideration

• Once 60 years old you can withdraw as much or as little as you wish, by regular monthly payments or individual withdrawals
• Many individuals withdraw their pension when they reach retirement age and use the funds to compensate for lost income
• The tax bracket on your savings can vary, depending on the withdrawal period
• You can delay withdrawing your pension and continue making returns on your pension plan
• Returns on your private pension do not affect any income from TR and are tax free

Do I have to withdraw my entire pension at the same time?

You make all the decisions on how and when you would like to withdraw your pension after the age of 60. You can withdraw the total amount, withdraw the amount you need when you need it or divide the withdrawals into monthly payments into your account.

You can make changes to your withdrawal method by contacting Íslandsbanki Investment and Pension services via email: sereign@islandsbanki.is or by telephoning one of our advisors. These changes can take time to process and we will need to know in advance.

Please note that the tax owed can be extensive if you withdraw the entire amount at once.

How does taxation work?

Income tax is paid when you withdraw your pension. Tax brackets vary, and many people decide to withdraw their pension over a longer period (more than one year) as a result.

The tax rates in 2021 are as follows:

• 31.45% of income 0-370,482 ISK (of which 17% income tax)
• 37.95% of income 370,483-1,040,106 ISK (of which 23.50% income tax)
• 46.25% of income over 1,040,106 ISK (of which 31.80% income tax)

All up to date information on taxation is provided by the Revenue and customs authority:

• Tax liability

Will the withdrawal of my private pension affect payments from the Social Insurance Administration (TR)?

The withdrawal of your pension does not affect these payments. However, withdrawing your private pension and investing it elsewhere could affect these payments as interest and other forms of capital gain can result in somewhat lower payments from TR.