One of the best savings methods available

Private pension savings are among the best savings methods available. A wage earner who saves 2–4% in this manner on a monthly basis receives a 2% matching contribution from the employer which is, in fact, a wage increase.

Principal information

Secure yourself a 2% pay increase

Based on a wage of ISK 350,000, paid-out wages decrease by a little less than ISK 9,000 per month (almost ISK 106,000 per year and a little more than ISK 3.7m over a period of 35 years). Based on a 4% real return, this comes to almost ISK 19m after 35 years. This means that the amount you set aside increases five-fold.

  • Main advantages
    Tax benefits

    Payments to private pensions are deducted from wages before taxes. Paid-out wages, therefore, decrease a little less than the amount that is deposited into the savings account, as the tax is paid when the savings are withdrawn. In addition, no capital gains tax is paid on the returns.

    Matching contribution from employer

    No one should miss out on the employer’s matching contribution, given that that the 2% contribution represents a clear pay raise. The employer is responsible for all handling of the payments once the private pension agreement has been finalised.

    Increased disposable income in old age

    On retiring, disposable income inevitably decreases, making it good to have the private pension savings at hand.

    The savings are inheritable

    Private pension savings are the personal property of the individual and are fully inheritable by legal heirs and divided according to rules stated in the Inheritance Act.

    Flexible arrangements

    As of the age of 60, it is possible to withdraw the entire amount at once, receive regular payments or as needed.

    Does not reduce certain payments from the government

    Private pension savings do not have an impact on old age pensions and income supplements from social security and do not reduce child benefits, interest tax rebates or unemployment benefits.

    Support to purchase first apartment

    Private pensions savings deposited after 1 July 2014 may be withdrawn and used tax free, provided that certain conditions are fulfilled. Savings from a period of 10 consecutive years may be used for this purpose. The maximum amount, however, is ISK 500,000 per year.

    Private savings may be used tax free

    Private savings may be paid tax free to reduce the principal of housing loans to 30 June 2019. Those who do not own real property can use their private savings in a comparable manner for pay-outs for property purchases. Such arrangement applies to the savings that have been set aside from 1 July 2014 to 30 June 2019.

Private savings for property purchases

  • Support to purchase first residence
    Effective for 10 consecutive years and the applicant selects the start date. The measures are threefold.
    1. Private pension savings that have accrued over a particular period may be used for the purchase of a first residence.
    2. Private pension savings may be used for a property loan that is secured with a lien in the first property and which was taken for that purchase.
    3. Private pension savings may be used for the payment of instalments on a unindexed loan and toward reducing the principal of a loan that is secured with a lien in the property.

     

    • These measures are tax free.
    • The maximum amount per year is ISK 500,000 per person, with a maximum 4% from the employee and 2% from the employer.
    • The contribution of the individual must be at least as high as that of the employer.
    • The right holder must own at least 30% of the residential property, and there may not be more than two buyers.
    • The Act entered into force as of 1 July 2014. Private pension savings that have accrued since 1 July 2014, however, may be used for the first-time purchase of a property.
    • Individuals who bought their first property during the period between 1 July 2014 and 30 June 2017 and who pay private pension savings toward the principal of a loan according to the earlier authorisation can apply for this measure for a first property, but they must send in the application before the end of 2017. The period that has already been utilised is deducted from the consecutive 10-year period.
    • Applications are to be sent electronically to Directorate of Internal Revenue.
  • Pay-out due to purchase of real property
    • Private pension saving may be used to purchase housing for personal use.
    • These measures are tax free.
    • This applies to paid premiums for wages earned during the period 1 June 2014 to 30 June 2019.
    • An individual can set aside a maximum of ISK 500,000 per year. The contribution of a wage earner is 4% but is a maximum of ISK 333,000 per year. The contribution of employer is 2% but is a maximum of ISK 167,000 per year.
    • Married couples and persons that meet requirements for joint taxation can set aside a maximum of ISK 750,000 per year. The contribution of a wage earner is 4% but is a maximum of ISK 500,000 per year. The contribution of employer is 2% but is a maximum of ISK 250,000 per year.
    • The condition is set that the person in question did not own real property on 1 July 2014 and until such time as the application for withdrawal is submitted.
    • Applications are submitted through the website of the Directorate of Inland Revenue once a purchase agreement has been finalised.
  • Private savings used to pay a deposit on a loan
    • The loans must be secured with a lien in residential housing for own use.
    • These measures are tax free.
    • This applies to paid premiums for wages earned during the period 1 June 2014 to 30 June 2019.
    • Applications for the measure are made through the website of the Directorate of Inland Revenue, leidretting.is. The application does not apply retroactively. The private savings are paid toward the loan from the month in which the application is submitted.
    • An individual can pay a maximum of ISK 500,000 per year. The contribution of a wage earner is 4% but is a maximum of ISK 333,000 per year. The contribution of employer is 2% but is a maximum of ISK 167,000 per year.
    • Married couples and persons that meet requirements for joint taxation can pay a maximum of ISK 750,000 per year. The contribution of a wage earner is 4% but is a maximum of ISK 333,000 per year. The contribution of employer is 2% but is a maximum of ISK 250,000 per year.

Specified personal savings

It is possible to deposit some or all of the premium that exceeds 12% (at present 3.5%) into a specified personal savings account.

At Gildi, those who already pay a 15.5% premium can also deposit up to 3.5% into a specified personal savings account.