Supplementary Pension Savings

Supplementary Pension Savings

The employee can pay up to 4% of the salary into a supplementary pension fund. If the employee makes a contribution of a minimum of 2% of the salary into a supplementary pension fund, the employee will receive a 2% contribution from the employer according to most union wage agreements. 

Your savings cannot be confiscated by a court of law and used to meet other financial obligations.

The premiums you pay are deductible from the income tax base. Income tax is not paid until the pension is paid out. You do not pay any capital gains tax on interest income, unlike on traditional savings.

Employers' contribution

The main advantage of supplementary pension savings is the contribution made by your employer. If you choose not to have supplementary pension savings, you are in essence turning down a pay increase from your employer in the form of a contribution to your pension.

A convenient way to save

Supplementary pension savings represent a very convenient way to save money as your employer is responsible for paying into the fund.

Inheritance

In the event of the beneficiary’s death, the supplementary savings become the property of his/her heirs and are divided amongst them in accordance with the Inheritance Act.

Wage guarantee fund

In the event that the employer is declared insolvent, the wage guarantee fund covers claims from pension funds for pension payments which have fallen due in the 18 months immediately before it was declared insolvent. This guarantee is limited to the payment of a 12% minimum premium and up to 4% supplementary premium.
Lífeyrisauki is a supplementary pension fund which was founded in 1999. Lífeyrisauki offers a wide range of investment strategies, each with a different level of risk. Lífeyrisauki is one of the largest supplementary pension funds in Iceland in terms of assets. The fund has assets of approximately ISK 60 billion and has 67,000 members.

If you require any further information about the fund please contact Arion Bank’s financial advisers on +354 444 7000 or send an e-mail to lifeyristhjonusta@arionbanki.is.

Can I pay into Frjalsi Pension Fund?

You can pay into Frjalsi Pension Fund as long as the wage agreement or employment agreement you have signed does not say otherwise. If in doubt, contact your employer. Frjalsi Pension Fund is in the custody of Arion Bank. 

Foreign citizens and the payment of pension contributions

Foreign citizens who are paid salaries in Iceland are obliged to pay mandatory pension contributions into a pension fund in accordance with Icelandic pension fund law in the same way as Icelandic citizens are.

An exception to this is when a foreign citizen from the EEA area is an employee of a foreign company for a limited period and has an E-101 certificate from their home country and is therefore covered by the social security legislation of that country.

Non-EEA citizens and payouts from mandatory pension savings and supplementary pension savings

  • Foreign citizens from outside the EEA can apply for the reimbursement of the contributions paid when they leave Iceland, without interest but with indexation, provided that this is not prohibited in the relevant agreements between Iceland and their home country.
  • Foreign citizens from outside the EEA can apply to have the account balance of their supplementary pensions repaid to them as of the payout date, i.e. contributions plus returns, when they move away from Iceland.

Non-Icelandic EEA citizens and payouts of mandatory pension savings

  • Non-Icelandic EEA citizens cannot be repaid contributions when they move away from Iceland. This is in accordance with mutual agreements between member states.
  • Non-Icelandic EEA citizens who have moved away from Iceland when a payout of contributions is made should turn to the partner organisation of the Icelandic Social Insurance Administration (Tryggingastofnun) in the relevant country who will forward the enquiry to Iceland. 

Non-Icelandic EEA citizens and payouts of supplementary pension savings

  • Non-Icelandic EEA citizens cannot be repaid supplementary pension savings when they move away from Iceland. If they have moved away from Iceland when a payout of supplementary pension savings is made, they need to contact directly the custodian to which payment was made as the Icelandic Social Insurance Administration and the Icelandic Pension Funds Association do not act as intermediaries in this respect.