When we get older, we need to think about retirement. Most people start accepting retirement pensions when they reach the age of 67. You can retire earlier, at the age of 65, or postpone retirement until 70. It is important that employees carefully prepare their leave from the labour market and that employers co-operate with care when people retire. This is often a difficult step to take.
There are a number of things that must be had in mind. These are some guidelines for companies and individuals facing retirement.
What do I do when I quit working?
There are a few things that a person needs to have in mind at the end of working life. The most important thing is to have some hobbies, be socially active and not have financial worries. Most people have paid into pension funds throughout their working life and have therefore earned lifelong pension benefits after retirement.
You will therefore receive benefits that reflect your contribution throughout your working life plus the interest that the pension fund has earned.
Payment from pension funds
You need to apply for benefits from your pension fund. You can access the websites of pension funds to find application forms and rules on tax cards as well. Please note that sometimes a person has contributed to other pension funds than he/she is now and has therefore earned benefits there.
Let us look at how this is done at the VR Pension Fund (Lífeyrissjóður verzlunarmanna). To view your rights, it is easiest to enter the website of the Fund and find the calculator. You can enter the appropriate information and the calculator will show the payments to which you are entitled.
The monthly payment to those who begin accepting benefits before the age of 67 declines by up to 15%, depending on when benefits begin, since the acceptance of benefits is distributed over a longer period of time. On the other hand, if you choose to postpone benefits beyond the age of 67, your monthly benefits will commensurably increase by up to 27.8%.
Individual pension accounts
When you reach the age of 60, you can withdraw from your individual pension account. If you are compelled to stop working due to permanent disability from an accident or illness, you are entitled to withdraw your deposit in your pension account. Payments from pension funds are taxable like other income, where pensioners can use their personal tax credit to offset their tax. Payments from individual pension accounts are subject to taxation under the same laws.
Payments from Social Security
All those who have reached the age of 67 and have lived and worked in Iceland for a certain period have a right to retirement benefits. Senior citizens can also be entitled to various supplements and benefits. All benefits from Social Security must be applied for. Those who receive disability benefits when they reach the age of 67 need not apply separately for retirement benefits. This is not complicated since Social Security sends a letter to all those who reach the age of 67 that points out their right to benefits. The letter contains application forms and income estimates that must be completed and returned to Social Security. Those who live in Reykjavík are also invited to have an interview with Social Security.
The Social Security website shows detailed information on the calculation of pensions and information on basic pensions. If you assume that you will continue to work after reaching 67 years of age, it can pay to postpone applying for a retirement benefit. The retirement benefit, the basic pension and housing supplement increase by 0.5% for each month up to the age of 72 years, up to a maximum of 30%.
To ensure correct payments from Social Security, all necessary information for benefit payments must be made available. If not, Social Security may demand the retroactive refund of overpaid benefits. This is the responsibility of the beneficiary. Therefore, it is necessary to:
- Report income adequately and in a timely manner.
- Report to Social Security any change in income.
- Carefully review your income estimate sent to beneficiaries by Social Security at the end of each year for calculating benefits for the coming year.
- Carefully review the planned payments at the beginning of each year that show the estimated payments for the year. The income statement shows all the premises on which payments are calculated.