Yes, pension payments are taxed, like any other income from work. Pensioners can therefore utilise their personal deductions to lower taxes.
It is the responsibility of each pension recipient to give notice of the income tax rate which should apply. The fund must be informed of any income from parties other than the pension fund, so that payments from the fund can be taxed at the proper rate.
Pensioners whose legal address is registered outside of Iceland must send us a life certificate every year before May 15th. If the pension fund does not receive the certificate, pension payments will stop from June 1st the same year. The life certificate can either be sent via mail or email to live@live.is.
As a general principle of tax law the employee's 4% contribution, the employer's contribution and a supplementary contribution by the employee of up to 4% in a personal pension fund are exempt from income tax.
Income tax must be paid, however, on your pension when you draw it.
It is important to keep track of whether contributions deducted from your wages are remitted.
You can log onto My Pages using electronic ID or your Íslykill password to view all payments received by the fund.
It is important to check that the contributions shown on the statement agree with your pay slips. In the event of substantial failure to remit contributions, valuable pension credits could be lost.
If your pay slips do not agree with the statement on My Pages you must contact the employer concerned and/or the fund's collection division without delay.
You fill out an application to withdraw personal pension savings.
Payments are made from the personal pension division on the last working day of each month. The application must be received by the fund before the 20th of the month when payment is to be made.
When a fund member has reached age 60 he/she can withdraw the savings from personal pension savings in a lump sum or spread it over whatever period is desired.
If you have to cease work due to permanent disability as the result of an accident or illness you are entitled to have the balance of your personal pension repaid over at least 7 years
Any remaining balance in your personal pension savings upon your death will be paid to your heirs in accordance with the rules of the Inheritance Act on legal inheritance. As a result of the provisions postponing payment of income tax on pension contributions, income tax is calculated on such personal pension savings but not inheritance tax.
The following documents must accompany an application after a member's death:
Children or spouses can waive their shares and, in such case, special statements attesting to this are prepared at the fund's office which the parties must sign.
Persons who pay contributions to private pension can withdraw and utilise payments made during the period 1 July 2014 to 30 June 2023 without tax for payment towards the principal of a mortgage on residential housing for their own use.
This authorisation is valid until 31 December 2024.
Further information regarding this is on the website of Skatturinn (Iceland Revenue and Customs)
Individuals who purchase a residential property for the first time are authorized to disburse, up to a certain extent and without tax liability (tax free), their personal pension savings.
The authorization applies to those individuals that have not owned a residential property previously. The applicant has to purchase a property either himself or jointly with another individual, though his share of the property has to be at least 30%.
The application must be received by Iceland Revenue and Customs within twelve months from the signing of the purchase agreement.
Find out more at the website of Skatturinn (Iceland Revenue and Customs)