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Pension Fund

Almenni is an open pension fund. As such, it both serves as an occupational pension fund for Architects, Doctors, Musicians, Technicians and Tourist Guides.

  • Almenni is also a pension fund for individuals who have the option of selecting their own pension fund and/or are willing to pay a supplementary premium to increase their spending power when they retire.
  • Fund members can pay both mandatory premiums (required by law) and supplementary premiums (voluntary) to the fund. Minimum mandatory premium (15,5% of total salaries) are divided between a mutual insurance fund (8,5% of total salaries) and private accounts (7% of total salaries). Supplementary premiums exceeding the minimum premium go into private accounts.
  • Fund members can choose between six pre‐designed portfolios for their supplementary premiums. Members can select portfolio according to their age or the risk they are willing to take. Furthermore, members can select the “Lifetime Track” in which the holdings are transferred between the “Life Portfolios” in accordance with each member´s age.

Contributions

According to Icelandic law, it is mandatory for employees and self-employed, between 16 to 70 years of age to pay minimum 15,5% of their total salaries into a certified pension fund.

  • In general, the employee pays 4% and the employer 11,5%. In addition, individuals can pay up to 4% of their total salaries to supplementary pension schemes.
  • At Almenni, 8,5% of total salaries is invested in a mutual insurance scheme and 7% of total salaries is invested in private accounts. This makes Almenni unlike most other pension funds in Iceland, as they in general deposit all of the mandatory contributions to the mutual insurance scheme.
  • A majority of the mandatory pension premium is invested in a mutual insurance fund (8,5% of total salaries). The main purpose of the Mutual Insurance Fund is to pay old age, disability, spouse, and child pension.
  • In Iceland employees and self-employed can pay up to 4% of their total salaries voluntarily contribution to supplementary pension schemes. Most employees who save 2%-4% of their wages will get a 2% reciprocal from his or her employer.
  • Supplementary contributions over 15.5% are paid into the member’s personal private accounts.
  • Fund members can start withdrawing from their private accounts at the age of 60, making retirement more flexible for members.

Mutual Insurance Fund

The main purpose of the mutual insurance fund is to pay lifelong and disability pension, spouse and children pension of the disabled or deceased.

  • Old Age Pension. Lifelong old age pension. Pension payments can begin at age 60 to 72.
  • Disability Pension. Disability pension is paid if the loss of capacity is reduced by 50% or more. The amount of the disability pension is evaluated according to earned pension entitlements. If a fund member has paid premiums during three out of the past four years and for six months during the past 12 months prior to the invalidity, an additional calculation is made to ascertain the entitlements the fund member would have earned through payments until age 65. Invalidity pension is paid until age 70, followed by old age pension.
  • Spouses Pension. Surviving spouse pension is paid on the decease of a spouse. The surviving spouse pension is equal to half the amount of the invalidity pension. The pension is paid for two years and then half the amount for one additional year or while the youngest child is younger than 20 or if the spouse suffers from a 50% invalidity and is younger than 67.
  • Child Pension. Child pension being paid on the loss of capacity or the death of a fund member, to the fund member’s child until it reaches 20 years of age.

Private accounts

A part of minimum contribution (7% of salaries) and supplementary contributions (contributions above 15,5%) are paid into a private account in the fund member’s name. If a member receives 15,5% in minimal contribution, the 7% of his/her salaries is paid into a private account.

  • Fund members can choose between six portfolios for their private accounts.
  • Members can start withdrawing from their private accounts at the age of 60, making pension payments more flexible by allowing them to decide how they withdraw their balances.
  • Members can withdraw from their private accounts if they will be disabled. In that case, a balance must be withdrawn over a period of seven years.
  • The private accounts are inheritable.
  • Members can use their private accounts to pay down their mortgage.

FAQs

  • Are foreign nationals temporarily working in Iceland obliged to contribute to a pension fund in Iceland?

    Yes, according to Section 1.4 of Act No. 129/1997 on mandatory pension insurance and the operation of pension funds, all employees, and employers or self-employed persons are obliged to secure their pension rights through membership of a pension fund from the age of 16 years until 70 years of age.

    An exception to this is when a foreign national within the European Economic Union area is an employee of an overseas company and works in Iceland temporarily, i.e. a maximum of 12 months. In such a case, he is not under obligation to pay premiums into a pension fund in accordance with Icelandic legislation, provided that he has an E-101 form from his home country. The E-101 form is a certification that the employee is insured in accordance with the social security legislation of his home country.

  • Can pension premiums paid by foreigners temporarily working in Iceland be reimbursed?

    According to Section 19.4 of Act No 129/1997, on mandatory pension insurance and the operation of pension funds, pension contributions of foreign nationals emigrating from Iceland may be reimbursed, provided this is not prohibited in accordance with international agreements to which Iceland is a party.

    Reimbursement cannot be limited to a specific portion of the contributions except on proper actuarial premises. This means that a pension fund may retain the part of the paid premium that is equivalent to the fee for the entitlements that the said individual has enjoyed in the fund while he contributed to it (invalidity, spouse or child pension).

  • Which international agreements limit the reimbursement of pension fund premiums to foreign nationals?

    The international agreements that limit reimbursement of pension fund premiums between countries is the EEA Agreement and the Agreement on Social Security Between  Iceland and The United States of America. This is based on the mutual agreement between member states concerning the implementation of social security rules for employees, self employed individuals and members of their families who emigrate between member states. According to the agreements, mandatory pension insurance is subject to the social security scheme.

    More specifically, this is based on Article 29 of the EEA Agreements, cf. Act No. 2/1993, Annex IV to the EEA Agreement and Item 2 of Article 10 of Council Regulation (EEC) No. 1408/71 on the application of social security schemes to employed persons and to members of their families moving with their communities, with subsequent amendments, cf. Regulation No. 589/2000 on the entry into effect of European Union regulations concerning social security schemes (pension fund entitlements and child care benefits (I)).

  • Is the reimbursement subject to taxation?

    Yes, because the premiums were paid into the pension fund before taxes. When premiums are paid out these are payments that previously formed a tax deduction from the income of individuals and also for the employer. Thus, this is an amount that has not been taxed and the person receiving the payment is, therefore, subject to taxation.

    In cases where an individual has emigrated from Iceland and where double taxation avoidance treaties apply between the country where the individual is resident and Iceland, the double taxation avoidance treaty shall determine whether the income is subject to taxation in Iceland or not. According to the provisions of most double taxation avoidance treaties, full tax obligation applies in Iceland for such reimbursements, as these payments are regarded as income accrued from employment in Iceland.

  • What happens to deposits in a defined contribution plan or pension entitlements if a foreign national emigrates from Iceland and does not transfer the entitlements?

    In cases where a foreign national leaves the country without transferring his deposited premiums, he continues to own a deposit in the defined contribution plan and/or entitlements in the defined benefit plan on the basis of the premiums that he has deposited in the fund. Thus, he is entitled to withdraw from the defined contribution plan or receive payment of old-age pension when he has reached the appropriate age.

  • Can supplementary premiums be reimbursed to foreign nationals when they emigrate from Iceland?

    According to Section 19.4 of Act No 129/1997, on mandatory pension insurance and the operation of pension funds, pension contributions of foreign nationals emigrating from Iceland may be reimbursed, provided this is not prohibited in accordance with international agreements to which Iceland is a party.

    The only international agreement that limits reimbursement of pension fund contributions between countries is the EEA Agreement. This is based on the mutual agreement between member states concerning the implementation of social security rules for employees, self employed individuals and members of their families who emigrate between member states. According to Annex VI to the EEA Agreement, mandatory pension insurance is subject to the social security scheme.

    More specifically, this is based on Article 29 of the EEA Agreements, cf. Act No. 2/1993, Annex IV to the EEA Agreement and Item 2 of Article 10 of Council Regulation (EEC) No. 1408/71 on the application of social security schemes to employed persons and to members of their families moving with their communities, with subsequent amendments, cf. Regulation No. 589/2000 on the entry into effect of European Union regulations concerning social security schemes (pension fund entitlements and child care benefits (I)).

    Further information on the website of The Icelandic Pension Fund Association can be read here.