The pension system
- When people stop working due to their age (aged 67-70 years), they receive old age pension and usually also payments from a pension fund.
- Old age pension is paid by the state, through social insurance institutions (the Social Insurance Administration). The rights people are entitled to in the social security system are linked to the duration of residency in Iceland. www.tr.is
- By law, all wage earners and self-employed persons are required to pay a pension fund contribution of at least 15.5% of total wages - which is divided between employees and employers. The wage earner pays 4% and the employer contributes 11.5%.
- The purpose of pension funds is to ensure that its members have sufficient old age pension to last them for the rest of their lives. Pension fund payments are also made to compensate loss of income for reasons of disability or the death of a spouse. www.lifeyrismal.is
- The amount of pension payments is determined by the premium payments made by each individual in the course of their working life, as well as the performance of the pension funds.
- Some pension funds are open to everyone, whereas others are restricted to specific professions.
- Supplementary pension savings are optional. Wage earners can make an additional contribution of 4% of their total wages to a pension fund, against a reciprocal contribution from the employer. A great many people do so.
Directorate of Labour
- The Directorate of Labor (VMST) is a public institution that operates according to the Act on Labour Market Measures and the Act on Unemployment Insurance. www.vmst.is
- Among the generic services that the Directorate of Labor provides to individuals are registration, qualification assessment, consultancy, remedies and labour recruitment.
- The Directorate of Labour has its head office in Reykjavík in addition to branches around the country.
- The Directorate of Labour pays unemployment benefits. These are always seen as a temporary remedy.
- Those on unemployment benefits must always be active in their job search and be ready to participate in labour market measures.
- An individual can be entitled to receive unemployment benefits for a total of 30 months from the time when the application for benefits was made.
- Wage earners aged 18-70 are entitled to unemployment benefits provided that they have accrued the right to receive insurance and meet various requirements.
- To be entitled to receive unemployment benefits an individual must have a permit to work in Iceland without limitations.
- People who have been accorded international protection status have unlimited rights regarding residency and work, and therefore may be entitled to receive unemployment benefits if other requirements are met.
- People who have received a residence permit on humanitarian grounds and/or a provisional residence permit have limited rights to enter into employment in Iceland, and therefore are not entitled to receive unemployment benefit payments. (If such individuals later receive permanent residency permits, they can apply for unemployment benefits.)
- Among the Directorate of Labour's tasks are:
- Keeping a register of available jobs and sharing information about available jobs to job seekers.
- Providing the registration of unemployed people and the payment of unemployment benefits.
- Organising labour market resources such as study courses, job resources, consultancy and work-related rehabilitation.
- Managing, procuring and sharing information about the state of the labour market in Iceland.
- Issuing work permits and registering foreign nationals in the labor market.
- Monitoring foreign workforce in cooperation with other government authorities.
- Working towards ensuring that foreign nationals enjoy the same wage terms as other employees on the Icelandic labour market.
- Operating a refugee team and an international department for the purpose of finding resources and providing services to people of foreign extraction in connection to activities on the labor market.
Tax evasion
- Sometimes people work and receive wages that are not officially declared and pay no taxes. This is called "working under the counter".
- Such economic activities are illegal and punishable by law.
- An economic operator who does not pay taxes on his/her activities and employees who do not pay taxes on their income are not contributing to society.
- Tax revenue is used to pay for services and projects that benefit everyone in society.
Working under the counter – What are the consequences?
- Working under the counter means that the individual:
- Receives no sickness pay.
- No summer vacation pay.
- No contribution towards pension rights.
- No right to receive unemployment benefits.
- No accident insurance on the job.
- Is less likely to get a bank loan or housing loan.
- Less likely to find an apartment to rent.
- There will be no employment contract, references or record of professional experience.
- Therefore, it will be more difficult to find other jobs.