universal pensions in Iceland?

The US Social Security Administration (SSA) has published, since 1937, very useful periodic reports on “Social Security Programs Throughout the World“. I often consult these volumes for information on specific countries. For the first time, I decided to use these reports to examine changes, over time, in the number of countries with universal pensions.

The SSA consistently describes Iceland’s basic old-age pension as a “universal pension”. In an article published in World Development (January 2007) p. 38, I classified Iceland as a country with “recovery-conditioned” basic pensions, i.e. pensions that are clawed back from other income that otherwise qualified applicants declare. This is a form of income-testing, so such a pension is clearly not universal. It is subject to an income test, in addition to the usual age and residence tests.

Nonetheless, nearly all sources, including the Government of Iceland, describe the pension as ‘universal’, most often with no explanation.

The ILO (International labour Organisation) follows the crowd in describing Iceland’s non-contributory pension as “universal”. But the ILO helpfully provides detailed information:

8. National basic pension – Old age pension

No means-test

Determining factors in old-age pension are duration of residence in Iceland and income. Pension rights are calculated pro rata according to periods of residence, minimum is 3 years and maximum 40 years. Old-age pension for a single person after 40 years of residence: Full basic old-age pension (grunnlífeyrir) for a single person after 40 years of residence is ISK 297.972 (Euro 3,401) per year. Reduced when annual capital or income from work criterion exceeds ISK 2.056.404 (Euro 23.475) and withdrawn when it exceeds ISK 3.049.644 (Euro 34.813).

ILO, “Iceland – Overview of schemes – 8. National basic pension – Old age pension“, accessed 12 November 2014.

An income test exists, so it is not true that there is “no means test” for this pension. The annual €3,401 benefit (€285 a month) is clawed back from annual income in excess of €23,475 (€1,956 a month) at the rate of 30%. This is a very small pension for such a high-income country as Iceland (the figures are for 2010), and it is clawed back from those who have other pension income and/or continue to be gainfully employed in old age. I would like to know what proportion of older persons in Iceland are affected by the clawback, but such information is not readily available.

I conclude that the pension is not universal, and fail to understand why it is described as such. For age pensions, the term ‘universal’ is frequently used as a synonym for ‘non-contributory’. This is a constant source of confusion, for it becomes difficult, if not impossible, to distinguish means-tested pensions (which are very common) from  universal minimum pensions (which are less comon) and truly universal pensions (which are quite rare).

That concludes my rant of the day. I am upset because loose use of the term ‘universal’ makes my work more difficult.

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