Iceland pays social security benefits to people who meet the applicable eligibility standards, including minimum length-of- residency and other requirements. Under Article 8, Iceland will add a person's U.S. coverage to his or her periods of Icelandic residency, if necessary, to meet eligibility rules. If the person meets the requirements based on combined U.S. and Icelandic credits, Iceland will pay a benefit in accordance with its laws (see Article 2.1(b)) on national old-age and invalidity benefits.
ICELANDIC SOCIAL SECURITY BENEFITS GENERAL
The Icelandic social security system is a three-pillar structure. The first pillar consists of a mandatory, residence-based, means tested benefit financed through general government revenues. The second pillar is a fully funded system invested in individual pension funds (mandatory for all wage earners and self-employed persons residing in Iceland). The voluntary third pillar is an option for employers and their employees to make tax-deductible contributions to a pension fund.
This Article applies to the first pillar system, which is a residence-based program that covers all residents of Iceland. Iceland pays benefits under the first pillar in amounts that it bases on the number of years of residency in Iceland. The second and third pillars exist to supplement the basic benefit. For people with low income, including all income from earnings, pensions, and other sources, a number of means tested supplements can increase the amount of the first pillar benefit. These supplements are a form of social assistance, and are only payable to residents of Iceland. Benefits and contributions under the second and third pillar schemes vary according to the funds in which an employee invests, and the government provides general oversight.
OLD-AGE BENEFITS
Retirement age in Iceland is age 67. The Icelandic system requires a minimum of 3 years of residency in Iceland for entitlement to an old-age benefit. A person may retire early at age 65 with a reduced benefit amount, and may elect to defer receipt of his or her benefit until age 70, at which point he or she will be eligible for a higher benefit amount. Iceland pays a flat rate benefit depending on the number of years of residency in Iceland, with 40 years of residency yielding the maximum benefit amount. A means tested system of benefit supplements for low income beneficiaries, including supplements for income level and caring for dependents, increases the basic benefit amount.
DISABILITY BENEFITS
Iceland pays disability benefits to people between ages 18 and 67 who resided in Iceland for 3 years prior to applying for a disability benefit (or 6 months if they were not disabled when they established residence in Iceland) and are assessed to have a permanent, recognized disability of at least 75% of working capacity. The Icelandic system calculates the benefit amount for the disability benefit in a similar manner to the old-age benefit, with many of the same means-tested supplements applying. However, an additional age-related supplement applies, with residents who became disabled at an earlier age receiving a progressively higher supplement.
SURVIVORS BENEFITS
Most survivors benefits in Iceland take the form of social assistance. However, a flat rate child's benefit is available to a child under the age of 18 whose parent is disabled or deceased, provided that either the child or at least one parent resided in Iceland for at least 3 years. The child's benefit amount is doubled if both parents are either disabled or deceased.
COST-OF-LIVING ADJUSTMENTS
Iceland provides annual cost of living adjustments in its national budget legislation. Benefits increase according to wage indexation, subject to a minimum increase equal to the annual change in the Consumer Price Index.