The foundation for a carefree retirement

By paying pension premiums, fund members are laying the foundations for a carefree retirement. From age 16 to 70, wage earners are under obligation to set aside a minimum of 12% of their total wages in savings for old age pension. The employee contributes 4% and the employer at least 8%. Entitlements can be seen in the Pension Portal on the fund member website of Gildi.

Pension

Taxation of pension payments

As with regular wages, pension payments are taxed. There are two tax brackets.

On the first ISK 893,713 per month
36,94%

On amounts exceeding ISK 893,713 per month
46,24%

Notification must be sent as to which bracket income tax payments are to be in if the total income of the pension recipient, from the fund and others if appropriate, totals more than ISK 893,713 per month. The fund is responsible for paying the withholding tax, but each fund member must notify the fund of the proportion of the tax card he wishes the fund to use.

In 2018, the personal tax allowance is ISK 53,895 per month and the tax-free limit of pension recipients, therefore, is ISK 145,899 per month, i.e. the personal tax allowance divided by the tax percentage (ISK 53,895 / 0.3694).

For example, to avoid paying tax on pension payments from the fund that amounts to ISK 100,000 per month, 70% of the tax card must be used (ISK 100,000 × 0.3694 / ISK 53.895 = 0.685).

Pension recipients may use up to 100% of the unused tax card of a spouse for tax reduction purposes. On the demise of a spouse, pension recipients can use the tax card of the deceased spouse for 9 months as of the month of passing.

RSK: Detailed information on taxes and their payment.