When retiring from employment or being unable to work due to disability, pension is available from several sources under certain circumstances.
There are various types of retirement pensions in the Faroe Islands.
All individuals up to the Faroese state pension age of 67 with full tax liability in the Faroes are required by law to save a portion of their salary in a pension scheme. The portion is increased by 1 per cent each year until 2029 when all individuals will be saving at least 15 per cent of their salary in a pension scheme.
Every type of payment of wages is subject to an obligatory pension contribution. This also includes committee payments, secondary jobs, overtime work, holiday allowance and more.
For most employees pensions are a built-in feature of employment contracts. The pension contribution is set according to agreements between trade unions and employers. An individual pension plan is normally set up by the trade unions. Most trade unions have an agreement with the Faroese Life Assurance Company about retirement pension.
Academic employees receive 16% of their salary in pension contribution. Their pension plan also has a built-in insurance scheme which covers serious illness, disability and death.
Pension savings are pre-taxed at 40%.
Individuals moving to the Faroe Islands to work for a limited period can achieve a pension exemption. This means that an amount equivalent to the pension contribution will be paid out together with the monthly salary. Exemptions may be granted for up to 60 months.
The work related retirement pension is inaccessible until retirement age which is 67 years. Up to 15 percent can be paid out in one payment when the owner reaches the age of 67. At least 45 percent of the pension must be paid out as a lifelong continuous pension on a monthly basis.
Faroese Life Assurance Company (in Faroese)
The Labour Market Supplemental Pension Fund is a collective fund for employers and employees.
Individuals who have lived in the Faroe Islands for at least 15 years between the ages of 15 and 67 can receive full payment from the Labour Market Supplemental Pension Fund.
Individuals who have lived in the Faroe Islands for at least 3 years between the ages of 15 and 67 can receive a proportional payment from the Labour Market Supplemental Pension Fund equivalent to the number of years they have lived here.
Labour Market Supplemental pension (in Faroese)
Danish citizens are entitled to a state retirement pension at the age of 67, if they have lived in the Danish Realm for at least 3 years between the ages of 15 and 67. This also applies for foreign citizens who are married to a Danish citizen.
In order to obtain full pension rights, the individual must have resided in the Danish Realm for at least 40 years. If the period of residence is shorter, the pension is reduced. Fractional pension is calculated on basis of the number of years spent in the Danish Realm from the age of 15 to retirement age.
Danish citizens who have been working in other Nordic countries for at least 3 years may have the right to pension for this period from the country where they have been working.
Danish citizens residing in the Faroe Islands have have been living and working in other Non Nordic countries may have the right to retirement pension from these sountries.
The state retirement pension consists of a basic amount and a potential supplement depending on outside income.
Department of Social Services (in Faroese)
Danish citizens who have lived in the Danish Kingdom for at least 3 years from the age of 15 are entitled to a national disability pension if their work capacity is permanently reduced by at least a half.This also applies for foreign citizens who or are married to a Danish citizen.
In order to obtain a full disability pension in the Faroe Islands, the individual must have resided in the Danish Kingdom for at least 4/5 of the time after the age of 15. If the period of residence is shorter, the pension is calculated in proportion to the time of residence.
Disability pension can only be granted if there is no suitable work available and it is not possible to improve the working capacity through work-improving measures.
Disability pension can be granted at three different levels depending on loss of capacity for work.
Department of Social Services (in Faroese)