Prepar­ing for re­tire­ment

A few useful tips as you approach retirement

The Icelandic pension system can be complex. Nevertheless, we encourage people to roll up their sleeves and take the time to understand their pension matters, as this kind of preparation can make a significant difference to the options available when retiring.

We all want our income to decrease as little as possible when we retire. Taking the time to prepare properly can make a real difference.

It can also be useful to understand the rules that apply to different parts of the pension system, for example, if you plan to work part‑time or withdraw investment income once you begin receiving retirement benefits.

But where is the best place to start? ?

Below, we answer a few simple and fundamental questions.

When can I start drawing a retirement pension?

You can apply for payments from the Social Insurance Administration (TR) between the ages of 65 and 80, and generally from age 60 to 80 from the pension funds. Supplementary pension savings are usually available for withdrawal after the age of 60.

Some people are fortunate enough to reduce their working hours before fully retiring and can apply for a partial pension from both TR and the pension funds. In such cases, you may not work more than the equivalent of a 50% position.

What about supplementary pension savings?

We always recommend that individuals contribute to a supplementary pension plan, as it effectively amounts to a 2% salary increase.

Income often decreases at retirement, and supplementary pension savings can provide a valuable boost once pension payments begin.

We also encourage people to continue building supplementary savings right up until retirement, regardless of whether they reduce their working hours beforehand or not.

Do supplementary pension savings reduce pension payments?

In most cases, no. This is a common misconception: supplementary pension savings generally do not reduce TR pension payments. In other words, there is no need to rush to start withdrawing supplementary savings before payments from TR begin.

However, if you withdraw your private pension over a short period on top of salary income, you may be subject to higher‑rate income tax.

Another point worth bearing in mind is that other types of private pension savings, such as specified private pension, open private pension, and restricted private pension do reduce old-age pension payments from TR. A detailed discussion of these types of savings falls outside the scope of this article.

Can I rely on friendly advice or social‑media discussions?

The short answer is no. Always ensure you base your decisions on up‑to‑date information that reflects current rules and pension systems.

It's perfectly fine to discuss pension issues with friends or follow online discussions, just remember that not everything you see or hear will be correct. Make your decisions based on verified, reliable information.

What do I need to know about the pension funds?

Through the Lífeyrisgátt portal, you can access a consolidated overview of nearly all Icelandic pension entitlements. You should also contact your pension funds directly to get answers to any questions you may have, for example, regarding the effects of applying earlier or later than the standard retirement age.

The standard reference age for drawing a pension is generally 67. However, as a fund member, you can choose the date that suits you best and either defer or bring forward your pension. If you start taking your pension earlier, your monthly payments will be lower than they would otherwise have been. Some people choose to draw their pension early in order to pay down debts, access funds for investment, or gain more flexibility to pursue hobbies and travel. Others prefer to defer their pension, for example to reduce their tax burden. Monthly payments increase the later you begin drawing your pension.

What do I need to know about the Social Insurance Administration (TR)?

With some simplification, the role of the Social Insurance Administration (TR) can be described as helping to balance the income of people in retirement. It does this by providing old‑age pension payments and household supplements. It also applies certain income‑related reductions in order to direct financial support from those with higher incomes to those with lower means.

You can use the TR online calculator to estimate your payments. Around 90% of Icelanders over the age of 67 receive monthly payments from the system, so it is well worth familiarising yourself with how it works.

TR Calculator

We hope this article proves useful as you prepare for retirement. You can find further information on our website about pension savings, supplementary pension savings, and related matters.