Make sure you have signed up for private pension

Additional pension savings 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.

When should I withdraw my pension?

Your personal circumstances are the most important factor when considering the best time to withdraw your money.

It is good to think about how the savings should be used and 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 Pension advisors by telephone: 440-4000, Contact us 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
• The withdrawal of the supplementary pension has no effect on the old-age pension payments from Social Insurance Administration (TR), but may affect other payments of the institution

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 in Fund member web (only in Icelandic) by contacting Íslandsbanki Pension services by Contact us , 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?

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 2023 are as follows:

• 31.45% of income 0-409,986 ISK (of which 17% income tax)
• 37.95% of income 409,986-1,151,012 ISK (of which 23.50% income tax)
• 46.25% of income over 1,151,012 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 the supplementary pension has no effect on the old-age pension payments from Social Insurance Administration (TR), but may affect other payments of the institution. However, the withdrawal of the private property that is created as a result of the payment of the minimum premium, such as specified and restricted private property as well as the private property part of the minimum premium, will reduce TR payments from the beginning of the year 2022-2023.

Keep in mind that 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.