Yes, pension payments are taxed, like any other income from work. Pensioners can therefore utilise their personal deductions to lower taxes.
It is the responsibility of each pension recipient to give notice of the income tax rate which should apply. The fund must be informed of any income from parties other than the pension fund, so that payments from the fund can be taxed at the proper rate.
Pensioners whose legal address is registered outside of Iceland must send us a life certificate every year before May 15th. If the pension fund does not receive the certificate, pension payments will stop from June 1st of the same year. The life certificate can either be sent via mail or email to live@live.is.
As a general principle of tax law the employee’s 4% contribution, the employer’s contribution and a supplementary contribution by the employee of up to 4% in a personal pension fund are exempt from income tax.
Income tax must be paid, however, on your pension when you draw it.
It is important to keep track of whether contributions deducted from your wages are remitted.
You can log onto My Pages using electronic ID or your Íslykill password to view all payments received by the fund.
It is important to check that the contributions shown on the statement agree with your pay slips. In the event of substantial failure to remit contributions, valuable pension credits could be lost.
If your pay slips do not match with the statement on My Pages you must contact the employer concerned and/or the fund’s collection division without delay.
You fill out an application to withdraw personal pension savings.
Payments are made from the personal pension division on the last working day of each month. The application must be received by the fund before the 20th of the month in which the payment is to be made.
When a fund member has reached the age of 60 he/she can withdraw their savings from personal pension savings in a lump sum or spread it over whatever period is desired.
If you must cease work due to permanent disability as the result of an accident or illness, you are entitled to have the balance of your personal pension repaid over at least 7 years.
Any remaining balance in your personal pension savings will be paid to your heirs upon your death, in accordance with the rules of the Inheritance Act on legal inheritance. As a result of the provisions postponing payment of income tax on pension contributions, income tax is calculated on these personal pension savings but not inheritance tax.
The following documents must accompany an application after a member's death:
Children or spouses can waive their shares and, in such case, special statements attesting to this are prepared at the fund's office and must be signed by the parties.
Individuals who pay contributions to a private pension can withdraw and utilise payments made in the period from 1 July 2014 to 30 June 2023 without tax for payment towards the principal of a mortgage on residential housing for their own use.
This authorisation is valid until 31 December 2024.
Further information regarding this is to be found on the Icelandic Revenue and Customs website (Skatturinn)
Individuals who purchase a residential property for the first time are authorised to use to some extent their personal pension savings towards it without tax liability (tax free).
This authorisation applies to individuals who have not previously owned a residential property. The applicant has to purchase a property either him/herself or jointly with another individual, although the individual’s share of the property has to be at least 30%.
The application must be received by the Iceland Revenue and Customs office within twelve months from the signing of the purchase agreement.
Find out more at the website of the Iceland Revenue and Customs (Skatturinn)