Basic (04-19)

GN 01763.015 Coverage and Contributions under the Icelandic Social Security System

The Icelandic social security system covers all residents of Iceland, regardless of nationality. The Icelandic social security system is a three-pillar social insurance scheme.

A. First Pillar: Residence-Based System

The first pillar provides coverage based on years a person has resided in Iceland. Since there is no specific tax on wages to finance the system, general government revenues cover the cost of benefit payments. A person receives credit for each year he or she resided in Iceland, and receives a proportionally higher benefit amount based on each year he or she lived in Iceland. Iceland bases benefit amounts on the ratio of years a person resided in Iceland to the years between ages 16 and 66, multiplied by a flat-rate figure calculated annually by the Icelandic government. Additional supplements to this amount exist based on the person’s income, care for dependent children, and for various social assistance purposes.

B. Second Pillar: Occupational Pension System

The second pillar covers all economically active persons in Iceland, except certain civil servants who have coverage under a special system. Under Icelandic law, all workers and their employers must pay contributions amounting to a certain percentage of payroll to a State supervised private pension fund. While the amount of a benefit varies depending on the performance of each fund, Icelandic law requires the minimum pension amount to be at least 56% of the worker’s wages.

C. Third Pillar: Voluntary Pension Contributions

The third pillar is based on voluntary individual pension savings with tax incentives. Third pillar contributions are managed by the same pension funds, banks, and insurance companies that manage the occupational pension system (second pillar). Pension funds must make payments in equal installments over at least seven years.

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GN 01763.015 - Coverage and Contributions under the Icelandic Social Security System - 04/25/2019
Batch run: 04/25/2019