Enhanced basic deduction (förhöjt grundavdrag)
Förhöjt grundavdrag is an extra basic deduction on earned income that you get once you have passed your target retirement age (riktålder). It leaves a larger share of your income untaxed, so the tax on both pension and salary drops noticeably.
What it is and when it kicks in
The basic deduction is the part of income the state does not tax. For someone who has reached the target retirement age it is raised by a supplement, the enhanced basic deduction. It applies from the year you have already reached the target age at the start of the year, that is, the year after you reach it. That threshold makes the tax fall like a step: the same income is taxed clearly less the following year than the year before.
The target age sets the threshold
Because it hangs on the target retirement age, the threshold moves between cohorts. The target age is 66 for those born 1958-1959, 67 for 1960-1966 and, as Pensionsmyndigheten projects it today, 68 for 1967-1981, 69 for 1982-1997 and 70 for 1998-2014. The enhanced deduction starts the year after: if you were born in 1962 the target age is 67, and you get the enhanced deduction from the year you turn 68. For someone born in the 1980s or 90s the threshold is therefore around age 70.
Worked example: the tax break
Take a pension of 300,000 kr a year, that is 25,000 kr a month. Before the threshold you get an ordinary basic deduction of about 34,000 kr. After the threshold, with the enhanced deduction, the basic deduction is instead about 136,500 kr. The taxable income therefore drops by a good 100,000 kr, which at a municipal tax rate around 32% cuts the tax by more than 30,000 kr in a year, for exactly the same pension.
Pension versus salary at the same income
The enhanced basic deduction applies to all earned income, so both pension and salary share in it after the threshold. The difference from younger years is that pension normally has no earned income tax credit: before the target age, pension is therefore taxed harder than salary. After the threshold the enhanced basic deduction puts much of that right, and anyone who keeps working also gets an enhanced tax credit on top.
Why waiting can pay off
The step is a strong argument for not starting to draw the pension too early. Draw it at, say, 63, before you pass the target-age threshold, and it is taxed with the lower, ordinary basic deduction. Wait until the enhanced deduction applies and you get the same pension with less tax. Combined with the fact that a later withdrawal also gives a lower divisor, and therefore a higher pre-tax pension, a couple of years' wait can make a big difference to what you keep in hand.
Calculate further
- Withdrawal calculator: model pension income and tax by age
- Public pension calculator: what the state pension builds up to
- Guide: drawing your pension, the order and the timing