Pension rights, borders and the EEA Agreement

Pension rights, borders and the EEA Agreement

“Icelanders who have lived in other states in the European Economic Area may have pension rights without knowing it. If they contact the State Social Insurance Administration, we send them an application, and it will then come to light whether they have rights,” said Anna Elísabet Sæmundsdóttir, Foreign Affairs Department Manager at the State Social Insurance Administration. 

„Icelanders living in Iceland, who have lived or worked in another EEA state may have accrued pension rights abroad. This includes a right to a pension after reaching a specified age, or a right to a disability pension if they fulfil certain conditions. It is simple to test this when the relevant pension age approaches.

It can also be that our foreign communication centres find in their systems that some Icelanders have pension rights there, but have not contacted them. We receive such information, and we send the person involved a letter. After formal applications on the rights have been sent, this establishes direct connection between the foreign communication centres and Icelanders. The institutions may want further information, for example, on whether the person involved is still working on the labour market, or whether they are being paid from a pension fund. They then answer the questions directly.“ 

Systems differ, also in Nordic countries

In other words, the State Social Insurance Administration is a foreign communications centre for comparable institutions in other states, with which Iceland has an agreement on mutual pension insurance. All applications in the European Economic Area are between these institutions, and communications take place on standardised forms in the language of the country sending the letters.

It can take from six months to an entire year to process applications for pensions. The time varies greatly depending on the states. Processing of a disability pension takes even longer.

Many think that the Nordic systems have very similar or even identical structures, but that is not the case. Rather, the Nordic systems are pretty different internally. There is no single "Nordic pension model", and the processing period for applications varies between states. Of the Nordic systems that Iceland deals with, the processing time for cases is generally shortest in Denmark.

The number of those getting a pension from other countries is greatly increasing

The number of those, on one hand, residing in Iceland but getting a pension from another country and, on the other, those living abroad and getting a pension from Iceland has increased enormously in a very short time. The number in both of these groups will continue increasing because of changed attitudes toward residence, globalisation of industrial operations and general mobility in the labour market.

We may also mention in passing obvious examples of "people moving elsewhere in times of crisis" in Iceland, which later noticeably affects pension systems. The generations going to Norway in search of work after the economic collapse in 2008 have understandably entered the pension systems there and in Iceland. The pension systems in Sweden and Iceland, on the other hand, have received people who went to Sweden after pack ice drifted up to Iceland's coast, and the herring disappeared. The result was an economic contraction here during the 1960s!

• In 2007, nearly 1500 resided in another country and got pension income from Iceland, but in 2017 the number had grown close to 2400. 
• In 2007, nearly 650 resided in Iceland and got pension income from another country, but in 2017 the number had grown close to 2300.

Example I

A person residing in Iceland with pension rights in another EEA State

• The State Social Insurance Administration sends an application and insurance certificate to the relevant foreign communication centre in the relevant state.
• The letter is processed abroad, but one should anticipate that this could take up to six months or even longer.
• The State Social Insurance Administration gets a ruling from abroad and an insurance certificate. It checks the documents and determines that the person involved has the rights to which he is entitled in each country, but not more than that (in other words, no double coverage).
• The State Social Insurance Administration records a foreign pension in the Icelandic system as income of the person involved.

Example II

A person residing in another country with pension rights in Iceland

• The State Social Insurance Administration receives an application from another country and also a summary of the time that the person involved is insured in the foreign pension system.
• If the applicant has resided in Iceland more than one year, he has rights. Therefore, information is requested from abroad*, but the application is rejected if the applicant has resided in Iceland less than one year.
• The State Social Insurance Administration forwards an application to pension funds.

 *It calls for further information from abroad for various reasons:

1. The pension systems are different and also the institutions administering them.
2. It must be determined that the person involved is not insured in two states at the same time.
3. The source of foreign pension contributions is very important.

• If pensions are solely because of residence (basic pension), it does not affect the State Social Insurance Administration’s payments.
• On the other hand, if payments in another country are related to work or are based on previous income from work, they are viewed as income from mandatory, work-related pension funds and can then reduce payments from the State Social Insurance Administration.

Example III

Icelander NN, residing in Sweden, gets a notice from the State Social Insurance Administration that he will get a monthly pension of ISK 91,601 per month from Iceland's State Social Insurance Administration. 
NN lived in Iceland for 16.21 years between the ages of 16 and 67, has 40.53% pension rights here and gets a ruling on a basic pension of ISK 91,601.

What assumptions underlie this ruling?

• NN gets an income-related pension in Sweden (inkomstpensjon) of SEK 48,576 per year (= ISK 627,116). This income reduces payments from the State Social Insurance Administration parallel to payments from an Icelandic pension fund.
• NN receives a basic pension in Sweden (garantipension), SEK 18,900 per year, that does not affect pension payments from Iceland's State Social Insurance Administration.
• NN receives ISK 32,269 per year from an Icelandic pension fund.
• The combined income for calculating a pension is therefore ISK 659,386 (627,116 + 32,269 = 659,386).
• After subtracting ISK 300,000 (the standard personal deduction) for income other than work-related income, the difference is ISK 359,386. That amount is reduced by about 45%, i.e., ISK 13,477 per month, because of "friction" between the pension systems in Iceland.
• NN's reduced pension from the State Social Insurance Administration is then ISK 226,007, and NN is entitled to 40.53% of that amount.
• The outcome: 40.53% of NN's basic pension rights in Iceland = ISK 91,601.

Based on an interview with Anna Elísabet Sæmundsdóttir and talks that she and attorney Halla María Sveinbjörnsdóttir at the State Social Insurance Administration gave at a meeting, sponsored by the Icelandic Pension Funds Association in February 2018.