The Icelandic pension system is consistently ranked among the best in the world. In Mercer's 2023 Global Pension Index, Iceland is ranked number 2 overall, and is one of only four countries with an A score, indicating that it is a "first-class and robust retirement income system that delivers good benefits, is sustainable and has a high level of integrity."
Iceland's system consists of three main pillars: mandatory occupational private pension schemes, basic state pension or "old-age pension" and voluntary personal pensions accounts .
Every employee in Iceland must contribute to a mandatory private pension scheme and receives an additional contribution from the employer, which for Alvotech employees is nearly three times the employee contribution (11.5% of gross monthly salary on top of a 4% contribution from the employee). Foreign nationals who are not citizens of the United States or a European Union member state plus Norway, Liechtenstein, or Switzerland (i.e. EU/EFTA countries) can repatriate their occupational pension fund contributions upon leaving Iceland permanently, but U.S. and EU/EFTA nationals will have to wait to receive payouts until at retirement.
Voluntary personal pension accounts may not be appropriate forms of savings for ex patriates seeking to retire outside of Iceland, because of tax implications. The basic state pension, or old-age pension, acts as a form of social safety net.
Mandatory occupational private pension schemes
When joining Alvotech, each employee must apply for membership in one of the domestic occupational pension funds. Monthly, 4% of the employee's gross salary is withheld for pension contributions, and Alvotech makes an additional matching contribution of 11.5% of the employee's pay. These contributions are invested by the occupational pension fund in various instruments such as government and corporate bonds, shares, and mortgage loans to fund members, for example.
Income tax from payments into the mandatory pension scheme is withheld until the employee starts receiving pension payments. Once payouts begin, they are taxed as wage income. Payments from old-age pensions, voluntary personal pension accounts, or any wage income and capital gains do not reduce payments from the occupational private pension scheme.
As a general rule, pension payments from the occupational pension funds begin at 67 and are paid out in monthly installments until the end of life. Pension payments may also be delayed up to the age of 80, in which case the pensioner is rewarded by higher monthly payments. Under certain circumstances, pension payments may start as early as 62 years of age, in which case monthly payments will be reduced.