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 15.5% of gross wages. The fund member pays a contribution of 4% and the employer a corresponding contribution of 11.5%.
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?
Effective from 1. January 2023 an employer pays 11.5% of your wages as a pension fund contribution by law.
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 927.088 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 USA and 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, USA, 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.
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