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a little less than the amount that is deposited into the savings account, as the tax is paid when the savings are withdrawn.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Private pensions savings deposited after 1 July 2014 may be withdrawn and used tax free, provided that certain conditions are fulfilled.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.