By law, wage earners are under obligation to be members of the pension fund of their profession. In the general market, a minimum of 12% of the total wage before taxes is to be set aside. The employee contributes 4% and the employer at least 8%, although the matching contribution is dependent on collective wage agreements.
The employer is responsible for ensuring that the premiums are deposited in the fund in question: 4% from the employee and 8% or more, as appropriate, from the employer, for a total of 12% of the total wages of each employee.
To ensure that the deposits are correct, the employee must compare his pay slips with the payment statement from the pension fund. Pension rights may be forfeit if the employer fails to deposit the premiums. Payments to pension funds begin in the month after the 16th birthday and end when the age of 70 has been reached.
According to the collective wage agreement between the Icelandic Confederation of Labour (ASÍ) et al. with SA-Business Iceland, from 21 January 2016, the matching contribution of the employer will increase to 11.5% in three steps.
| 1 July 2016 | 1 July 2017 | 1 July 2018 | |
|---|---|---|---|
| Employee pays | 4,0% | 4,0% | 4,0% |
| Matching contribution | 8,5% | 10,0% | 11,5% |
| Total premium | 12,5% | 14,0% | 15,5% |