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How They Handle Pensions in Iceland

By Lorie Murdock

Although retirees in one of the smallest, most remote countries in Europe have plenty of recreational activities to keep them busy, many aged 60-plus also choose to work.

As well as golfing, fishing, hiking, socializing in outdoor thermal pools or travelling, more than half of Icelanders between the ages of 60 and 70 are still on the job. About one in five 65 and older earns a paycheque past 70.

For the average worker, pension payments are calculated based on retirement at age 67, but employees can start collecting payments — and settle for less — if they choose to retire at 65; at 70, they’ll get more.

Retirement income is based on three pillars: tax-financed public pension schemes, occupational pension schemes and voluntary private pension funds.
The occupational plan requires employees to contribute 4% of their salary until age 70; the employer puts in 8% — more for public workers and in some industries. Those who pay 2% into a private fund receive an equal amount contributed by their company.

Thorvardur Gunnarsson, managing partner and CEO at Deloitte’s Reykjavík office, says that although the official retirement age is 62, most of the staff continue working for five more years, but in a more limited role.

“[Staff] typically get 50% to 60% of their salary per month from the pension funds, depending on how much their contributions to the pension fund system have been,” he says. Gunnarsson had planned to retire at age 62 in 2016, but the 2008 financial collapse took its toll on his savings and pension funds. “My plan now is to leave the firm where I’ve worked for 38 years and pursue a second career. When you think about it, 62 is pretty early to stop working when you’re in good health.”

Recent rules that can cut up to 60% in pension payments for extra-income earners, however, may tarnish workplace longevity. Extra earnings above 140,000 krona (approximately $1,093.40) a year can reduce pension payments.

This article was originally published in the April 2013 issue of CAmagazine.