Payments and employer's contributions

The questions and answers below provide information on fund membership, contributions and entitlement percentages. There are also explanations of how members can check on their entitlement earned in this pension fund and other funds.

Who are members of LV?

Wage earners who are members of VR are members of the fund. Members of other commercial workers' organisations are also fund members, together with workers whose terms of employment are based on VR's collective bargaining agreement or who work in the union's operating sector. All employees and self-employed persons are required by law to contribute to a pension fund from age 16 to 70 years.

The law also allows various other wage earners and self-employed persons the option of becoming members of the fund.

How much do I have to pay to my pension fund? 

The mandatory contribution is 12% of gross wages. The fund member pays a contribution of 4% and the employer a corresponding contribution of 8%.

Collective bargaining agreements have provided for the employers' contribution to rise in stages. The second stage has now come into effect and provides for an employer's contribution of 10%, making the total contribution 14%.

A self-employed person pays both the employee's and employer's contributions.

Contributions are not calculated on vehicle allowances, company cars, per diem allowances and other expenses covered by employers.

How much is the employer's contribution? 

By law an employer pays 8% of your wages as a pension fund contribution. Under collective bargaining agreements this employer's contribution is to increase to 11.5% in stages. The second stage has now come into effect and provides for an employer's contribution of 10%, making the total contribution 14%.

What entitlements do I earn by making payments to the pension fund?

By making payments to the fund members earn the right to lifelong pension benefits, disability pension and spouse's and child's pensions.

Do I pay tax on my contributions?

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.

Examples of how pension savings reduce income tax paid

Gross monthly wages

100.000 150.000 300.000

4% contribution deducted 

4,000 6,000 12,000

4% supplementary contribution deducted

4,000 6,000 12,000

Reduction in withholding tax*

2,955 4,433 8,866

Annual reduction in withholding tax* 

35,460 53,196 106,392

*36.94% tax is paid on monthly taxable income of ISK 834,707 or less.

How can I check that my pension contributions are received by the pension fund?

It is important to keep track of whether contributions deducted from your wages are remitted.

You can log onto the members' area (Sjóðfélagavefur), of the LV website 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 agree with the statement you must contact the employer concerned and/or the fund's collection division without delay.

Does it affect my pension entitlement if I change pension funds?

Pension credits you have earned are preserved and inflation-indexed. When the time comes to draw your pension, you will be paid accordingly. Many people receive payments from more than one pension fund just as they received wages paid by more than one employer.

The entitlement to disability pension is based on the Articles of the respective pension fund and an agreement on co-operation between pension funds, to which most funds are parties.

Do foreign nationals receive refunds of their contributions from the fund?

No refunds are authorised to nationals of countries in the European Economic Area (EEA). These countries are:

Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Iceland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Norway, Portugal, Poland, Romania, Slovakia, Slovenia, Spain, Sweden and the UK as well as Switzerland.

A fund member who was a national of an EEA state while making contributions is not entitled to a refund of those contributions.

A fund member who is a national of two countries, of which at least one is an EEA state, is not entitled to a refund of pension contributions.

If a foreign national is entitled to a refund of contributions the following rules apply:

If the length of the contribution period is less than three years, with the result that no right to extrapolation for disability pension has been acquired, the national in question shall receive a refund of both his/her contributions and the employer's contributions with indexation linked to the CPI but without interest.

If the length of the contribution period is more than three years but less than five years, and the right to extrapolation for disability pension has been acquired, the refund percentage shall be based on the following table of the Society of Icelandic Actuaries, where the age of the foreign national when the refund is made is the primary determining factor. The refund percentage is therefore based on the insurance coverage the member has enjoyed.

 Age

Refund percentage

16-29  100%
30-34  95%
35-39  90%
40-44 85%
45-49 80%
50-59 75%
60-64 80%
65- 85%

Where the length of the contribution period exceeds five years and substantial entitlement has been earned, the determination of the refund is appropriately done by the pension fund's actuary.

An application for refund must be accompanied by:

  • confirmation from the employer of conclusion of employment;
  • a copy of the person's passport;
  • a copy of or confirmation of travel tickets;
  • a copy of the final pay slip;
  • an account number in an Icelandic bank.

Income tax is payable on the refund at source.

Application from

Obligation of foreign nationals to pay pension contributions in Iceland

Information on the obligation of foreign nationals to pay pension contributions in Iceland is provided by:

Ministry of Finance and Economic Affairs

Moving between states - State SocialSecurity Institute

National Association of Pension Funds