Do Shit: Paying It Forward (To Yourself)

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Pensions.

Hey, wake up, it’s not that boring!

In fact, if you really think of it, knowing that you’re putting money aside now to sustain you in your third act is pretty exciting. But it’s also a little confusing. Sure, it’s a percentage deducted from your monthly paycheque, but how much is being deducted, how much is your employer chipping in and when will you see that money again?

Thirsty for answers, we turned to Jóney Gylfadóttir, a pension agent at Lífeyrissjóður Verzlunarmanna, to tell us more about the wild and wonderful world of pensions.

“All employees and self-employed people are required by law to contribute to pension funds,” Jóney explains. “So from 16 years old, if you are in the labour market by then, and until you are 70 years old you have to pay into a fund.”

The legally-mandated payment currently amounts to 15.5% of one’s gross wages, but that doesn’t mean you are setting so much aside for the future (unless you’re self-employed, then it’s all on you). The employee contribution is 4% and then the employer kicks in the other 11.5%. By contributing to a pension fund monthly, you’re earning your right to a lifelong pension once you retire. Those who find themselves disabled and unable to work can also collect a monthly pension. Monthly pension payments are also paid out to the spouse and minor child of a fund member who dies.

Focusing on the most common occurrence — making it to retirement age and collecting a lifelong monthly pension from there on, Jóney clarifies that those with their pension at Lífeyrissjóður Verzlunarmanna can begin drawing monthly payments from 60 years old. The minimum age varies by pension fund, and the age that is typically considered “retirement age” in Iceland is 67.

“If you start to draw your pension at 60, you obviously get a lower pension than if you would start at 67 because you will get it for a longer time,” Jóney clarifies. “So the amount decreases based on how many months before 67 you start receiving your pension.”

The amount one receives monthly is also dependent on how much they paid into the fund while working. So those who work full-time hours will eventually receive higher monthly payments than those who have been less active on the labour market.

At this point I can read your mind, fellow útlendingur: but what if I’m not living in Iceland when I reach the ripe old age of 67?

You choose to have your personal pension savings with a bank or a fund and choose to save another 2% or 4% of your gross salary. Then the employer has to contribute another 2%, so it’s kind of insane not to use that opportunity.

Well, there are a couple of scenarios that could play out here. According to Jóney, those who are not citizens of a European Economic Area member state or the United States do have the option of getting their pension refunded upon leaving Iceland. For those who move away from Iceland without touching their pension, Jóney says to make sure your contact details are always up to date with your pension fund.

“It’s very important to keep your details up to date in ‘my pages’ or the equivalent with your pension fund,” Jóney advises. “We send notices to people at 65 years old and again at 67 reminding them that they have pension entitlements. But if we don’t have contact information, we aren’t able to do that; so it’s crucial to keep your details current.”

Another very important aspect of this retirement savings scheme is the personal pension savings.

“This is optional, but we always say that choosing personal pension savings is like getting a 2% raise,” Jóney explains. “You choose to have your personal pension savings with a bank or a fund and choose to save another 2% or 4% of your gross salary. Then the employer has to contribute another 2%, so it’s kind of insane not to use that opportunity.”

It would seem that Iceland’s immigrant population is insane (but we knew that — we moved to Iceland, afterall). According to a recent study from the Central Bank, the vast majority of immigrants in Iceland are not contributing to personal pension savings. Get on it, my fellow foreign friends!

Follow the Grapevine’s Do Shit series to collect tips and tricks for navigating life and bureaucracy in Iceland.