Even if I make monthly payments towards my pension, pension payments from my compulsory pension plan will only amount to half of the income I have had during my lifetime. My income could therefore be halved when I retire unless I put more aside.
If I register for supplementary pension savings my employer will pay a complementary contribution. My salary will increase by 2% as soon as I start to save and go directly towards my pension savings. My employer's complementary contribution is added to my contribution and the total contribution is therefore double the amount that I save each month.
Returns, interest and compound interest multiply and rise dramatically as the years go by. The first payment towards supplementary pension savings is the most valuable one, as the payment will accrue interest for decades and in the end it will have multiplied.
Savings options that deliver high returns generally carry more risk and fluctuate more dramatically. If you are investing for the long term, it is all right for returns to fluctuate as these fluctuations will even out over time. If I start to save late in life it makes more sense to choose safer savings options which generate lower returns. Which is another good reason to start early.
Supplementary pension savings are my possession. If I pass away before I have withdrawn all of my savings, it will be inherited by my heirs. That is why saving this way will never be for nothing.
Supplementary savings are tax-free until I withdraw my savings. I don't pay income tax on payments made towards my pension and I pay no capital income tax on the returns generated. My money is left to accrue interest right up to the day I withdraw it, which is when I pay income tax.
Landsbankinn hf. Austurstræti 11, 155 Reykjavík, Reg. No. 471008-0280
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