Here you will find an overview of the main factors that are worth considering when planning retirement.
The answers to questions like these will help you evaluate the options available to you.
On LSR’s My Pages, you can see the rights you already have, both at LSR and other Icelandic pension funds, which are shown based on the 67-year retirement age. If you start receiving pension earlier, you will receive less per month, but more if you wait until age 67 to retire. These amounts are estimated on the My Pages, along with how much entitlement will accrue if you continue to pay into LSR until retirement. It is not necessary to start drawing pensions from all funds at the same time.
Division B of the LSR is displayed differently. The retirement age is based on 65 years, and if you are an active fund member in Division B, you will see the percentage on My Pages. It tells you the percentage of your reference salary that you have earned. If you are employed full-time, this reference salary is usually based on the daily salary you have at the time of retirement. If you have reserved rights in Division B, they are displayed in most cases as a number of ISK per month. Here you can find more information about Division B.
Division A pension rights are indexed and therefore change in line with inflation, both while you are still accruing rights and after you retire. In Division B, retirement payments change in line with salary trends for public employees.
You can see your balance in LSR's private pension funds on My Pages, but if you have private pension funds elsewhere, you need to check their status with the relevant bank or pension fund. If you have private pension with LSR, you can estimate the balance based on ongoing payments and calculate possible payouts.
Private pension is available for payment from the age of 60 and you have full control over the payouts. The specified private pension is available for payment from the age of 62, but then the payments must be spread evenly until the age of 67. After age 67, the specified private pension is available for payment in full.
Private pension is available for payment in full from the age of 60. But even if you have started receiving payments from private pension, you should not stop paying into the private pension fund while you are still working, because that way you will continue to receive the employer's 2% matching contribution right up to retirement.
Different rules apply to payments from private pension and specified private pension when it comes to reductions in payments from TR. Payments from specified private pension reduce TR payments, but payments from traditional private pension do not, however, reduce TR payments.
The Social Insurance Administration (TR) pays old-age pensions based on a certain monthly amount. Various types of income, including pension payments from pension funds and payments from specified private pension reduce TR payments, so it is a good idea to carefully examine the interaction between income and TR old-age pension payments. With TR's calculator, you can get a good idea of possible payments from the institution based on your situation.
Payments from traditional private pension are not subject to reduction by TR, but payments from specified private pension are, however, subject to reduction.
Payments from TR are projected in advance and are closely linked to other income you receive, such as salary income, pension fund payments, etc. Therefore, you should carefully review your income plan with TR every year so that you do not have to repay an overpaid pension. Remember to assume that pension payments are indexed and therefore increase in line with inflation each year.
Pension fund premiums are exempt from tax, but instead you pay income tax on all payments you receive from pension funds, whether they are pensions, disability pensions, spousal pensions, child pensions or private pension savings. When you start receiving payments from pension funds, it is your responsibility to provide correct information about withholding tax and the use of personal tax credit. On My Pages, you can set the tax bracket and the use of personal tax credit at LSR.
It is especially important to keep the tax brackets in mind for payments of private pension savings. Balance in private pensions is fully available for payouts from the age of 60 and specified private pension in full from the age of 67. But if a large amount is taken out in one lump sum, it could result in a large part of the private pension being counted in the highest tax bracket. Therefore, it can be wise to take out the private pension over a longer period of time in regular payments.
Do you have enough rights with any pension funds to be able to get them paid in a lump sum? Then it's a good idea to complete that before you apply for an old-age pension at the Social Insurance Agency (TR), so that the payment does not reduce TR's payments. The rules differ between funds, but at LSR it is assumed that a lump sum is paid in Division A if entitlements are below ISK 3,232 per month and in Division B if rights are below ISK 2,405 per month.
Once you've prepared the overview, the next step is to set up a plan. When do you want to start receiving a pension, when do you want to stop working and when do you want to be paid from your private pension fund? Use the LSR and TR calculators to set up your plan.
If you want to start drawing a pension from several funds at the same time, it is enough for you to apply for a pension from the pension fund to which you last paid and request that it forward the application to other pension funds.
In terms of private pension, you need to apply separately for payment from each private pension fund.
If you plan to apply for an old-age pension at TR, you must apply for it on TR's website.
Should I use a tax card? In which tax bracket should the pension be calculated?
After you turn 62, you can submit an application for payment of specified private pension
If you are between 62 and 67 years old, you must request equal, monthly payments until the age of 67
After the age of 67, you can manage the payouts as you see fit. For example, you can choose to withdraw a certain amount of your choice in one lump sum or be paid a certain amount monthly.