With Rising Life Expectancy, Pension Benefits Lowered by 10%

retire in iceland

As of July 1st, the Pension Fund for Icelandic State Employees (LSR) will lower its benefits by approximately 10%. In an announcement on the benefit cut, LSR stated that it was in part due to rising life expectancy.

The Ministry of Finance and Economic Affairs released new life expectancy tables at the end of 2021, which assume that Icelanders will live considerably longer than previously estimated, and that younger generations will have a longer life expectancy than older generations.

Read More: Cabinet to Receive 6% Raise Amid Inflation and Interest Hikes

“Someone who is in their sixties today will live two years longer than previously estimated. But someone who is 25 years old today is expected to live four years longer than previously estimated,” stated Harpa Jónsdóttir, Executive Director of LSR. She continued: “And the thing is, we are still going to pay for the same length of time, but there is no additional money coming into the pot. So, we just need to take the same money and spread it over more years.”

Pension funds must now adapt to these changes and anticipate paying pensions for a longer period than previously calculated. On average, these changes will result in a decrease of 9.9% in the monthly entitlements of those currently contributing to the fund. For those that receive pensions from the fund and do not have state insurance, the payments will decrease by 4.1% from July 1st of the upcoming year.

Read More: Central Bank Raises Key Interest Rates by 1.25%

The changes will apply to those who will receive payments from the fund in the future, while the entitlements of those who already receive payments from the fund will decrease by about 4%.

According to LSR, “the reduction in rights and pension payments is a significant measure for the fund but is nevertheless necessary given the current situation.”

 

Median Age in Iceland Lower Than Anywhere in European Union

Iceland flag national team

According to new data published by Eurostat last week, the median age of the European Union population was 44.4 years old as of January 1, 2022. The median age in Iceland, 36.7, is far lower—lower in fact, than in any country in the EU.

Iceland is not a member of the EU, but it is part of the European Free Trade Association (EFTA), along with Lichtenstein, Norway, and Switzerland. Eurostat measures the median age in EFTA countries alongside that of countries in the EU.

In 2022, the median age in EU countries ranged from 38.8 in Ireland and 39.7 in Luxembourg to 46.8 in Portugal, 46.1 in Greece, and 48.0 in Italy.

The median age in the EU has increased by 2.5 years since 2012, when it was 41.9 years. This is an average of .25 years annually. Iceland’s median age has also increased since 2012, but less than it has in the EU: it’s only gone up 1.4 years in the last ten years. The only EU countries that did not see an increase in their median age last year were Malta and Sweden. There was no change at all in Malta, where the median age remains 40.4 years. Sweden’s median age went down, if only incrementally, from 40.8 years in 2012 to 40.7 years in 2022.

Europe facing a ‘marked transition towards a much older population structure’

The recent Eurostat findings also measured what it calls the “old-age dependency ratio,” that is, “the number of elderly people (aged 65 and over) compared to the number of people of working age (15-64).” In 2022, more than one fifth of the EU population (21.1%) was aged 65 and over. Demographic aging is “likely to be of major significance in the coming decades,” reads the report. “Consistently low birth rates and higher life expectancy are transforming the shape of the EU’s age pyramid; probably the most important change will be the marked transition towards a much older population structure.”

As of 2022, the old-age dependency ratio in the EU increased to 33%, up 5.9 percentage points (pp) from 27.1%  in 2012. “This indicator varied among EU members,” explains the report, “but remained above 20% in all of them.” This is true in Iceland as well, where the old-age dependency ratio in 2022 was 22.5%, up from 18.9% in 2012.

Across the EU, there was an average increase of 3.1 pp in the share of the population aged 65 or over between 2012 and 2022. Considered alone, Iceland had less of an increase in this indicator, only going up 2.4 pp over ten years, but the country still experienced more of an increase in this indicator that a number of countries surveyed, including Latvia (2.3 pp), Switzerland (1.8 pp), Austria (1.6 pp), Sweden (1.5 pp), Germany (1.4 pp), and Luxembourg (.8 pp).

These findings are significant and are expected to dramatically impact daily life and economies throughout Europe in the future. As the Eurostat report explains, “As a result of demographic change, the proportion of people of working age in the EU is shrinking while the relative number of those retired is expanding. The share of older people in the total population is expected to increase significantly in the coming decades. This may, in turn, lead to an increased burden on those of working age to provide for the social expenditure required by the ageing population for a range of related services.”

See Eurostat’s full summary of its findings, in English, here.

Can I retire in Iceland? What’s the cost of living?

cost of living iceland

Iceland ranks highly on many indices as a great place to live for the elderly. Many are attracted to Iceland for the peace and security enjoyed by Icelanders, in addition to the outdoors, of course.

However, it’s worth noting that on ranking for retiree well being, it is generally assumed to be for the well being of resident retirees. Moving here will be expensive, given the relatively high cost of living in Iceland, so this is something to bear in mind.

As a retiree, you will be subject to all the same immigration regulations that we outlined in our Ask Iceland Review on moving to Iceland. As a potential retiree in Iceland, there are several ways to apply for residence.

If you are over 67 and have an adult child with Icelandic residence, you are able to apply for a parental reunification permit. There is also an ambiguous category of visas for those with a “special connection” to Iceland. Likewise, you may also be able to apply for a residence permit based on “legitimate and special purpose.” Of course, if you are a citizen of an EU / EEA nation, you need not worry about these restrictions, and just need to worry about the practical matter of supporting yourself during your retirement.

However, as a retiree, since you will not be working, you will need to be able to prove you have the means to support yourself during your retirement. This can, unfortunately, prove problematic for some given the high cost of living in Iceland.

Although the estimate may be rather low, as it is geared towards students, the University of Iceland provides a useful overview of the cost of living in Iceland here. According to the Welfare Division of Reykjavik City, the basic support criteria for an individual in Reykjavik is around ISK 212,000, around USD 1,477 or EUR 1,483 at the time of writing. Of course, if you want to do more than just survive during your retirement, then you should factor in considerably more than this for travel and recreation.

Finally, this information from Registers Iceland on average rental prices in Iceland serves as a good index for cost of living both in Reykjavík and throughout the country. As of July 2022, the most recent information as of time of writing, the average price per square meter for a 2-bedroom apartment in the capital area sits around ISK 3,437 (USD 24, or EUR 24). This will of course vary depending on a variety of factors, but be prepared to pay at least ISK 200,000 (USD 1,394 or EUR 1,399) for a modest apartment in the capital region. Rent is just one factor in the cost of living, but it serves as a good baseline to set your expectations.

Of course, choosing somewhere to retire is a large life decision, and visa permits and cost of living in Iceland are just the beginning of things to consider. We hope this serves as a good starting point in your research!

Plans to Raise Mandatory Retirement Age for Healthcare Staff to 75

Iceland’s Health Minister Willum Þór Þórsson wants to speed up plans to raise the mandatory retirement age for healthcare workers to 75, RÚV reports. Public employees may not work past the age of 70 according to current regulations. Willum has stated that the move is intended to help relieve staffing issues that plague Iceland’s healthcare system, though more needs to be done.

If the regulations are amended, healthcare workers will still be dismissed upon reaching the age of 70, but would be eligible to be rehired on a new employment contract until the age of 75. Willum stated that such employees may be subject to a skills assessment.

Read More: Chairman of Medical Association Warns of Doctor Shortage

The Health Minister stated that although raising the mandatory retirement age would hopefully relieve staffing issues, it would still be necessary to make various medical professions more accessible to young people and improve recruitment across the field.

In Focus: Iceland Named Top Global Pension System

Iceland regularly receives accolades for its breathtaking nature and peaceful society, but the country received a new title in 2021 – having the best pension system in the world. Global consulting firm Mercer compares the pension systems of 43 countries in its annual pension index, and Iceland came out on top. Iceland has the most […]

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Priests Alarmed by Proposed Continuation of Budgetary Cuts

Priests in Iceland are alarmed by the proposed continuation of budgetary cutbacks within the Evangelical Lutheran Church, according to the Director of the Minister’s Association, Ninna Sif Svavarsdóttir. Budgetary cuts will be discussed at an annual Church Assembly, which begins tomorrow.

Reduction of full-time equivalent units

In an interview with Mbl.is, Ninna Sif Svavarsdóttir – pastor at the Hveragerði parish and Director of the Minister’s Association – stated that priests were “alarmed” by the proposed continuation of budgetary cutbacks passed at an extraordinary Church Assembly in January of this year. The proposed continuation, which will be submitted to the Church Assembly (Kirkjuþing) beginning this weekend, involves the temporary cessation of new hires within the Evangelical Lutheran Church of Iceland and the Bishop’s Office, along with continued retrenchment of church’s staff (e.g. a decrease in the number of salaried priests and the consolidation of parishes).

According to a memorandum published on Mbl.is on October 20, the Evangelical Lutheran Church hopes to reduce the number of full-time equivalent units from 169.7 to 157.7 – the number originally proposed in the church agreement from 1997 – and thereby save approximately ISK 180-190 million ($1.4-1.5 million / €1.2-1.25 million) annually.

No replacements for retired priests

According to Ninna, January’s budgetary cutbacks had an immediate impact on church services: “Several priests retired, and no replacements were hired. More priests are expected to retire in the coming weeks, and there will probably be no new hires to replace them either,” Ninna remarked. “Priests worry that they’ll be asked to take on more responsibility for the same wages and that they’ll be unable to maintain the same level of religious services.”

Priests are dependent on the national church for employment, Ninna notes: “They are, of course, worried about these positions; we can’t apply anywhere else … the church agreement – which is the basis for the financial relationship between the church and state – stipulates that the lion’s share of the church’s budget be dedicated to the salary of priests.”

In addition to budgetary proposals, the priest and mediator Kristinn Ágúst Friðfinsson has proposed that lay representatives at the Church Assembly, which constitute the majority of those assembled, be chosen at random.