There is a tax benefit for your own contributions to certain pension schemes. Private contributions to deductible schemes reduce your personal income.

Contributions paid via your employer are normally covered by the “exemption rule” (bortseelsesret): you are not taxed on the contribution when it is paid in, and therefore you do not see a “deduction” on your annual tax statement – the amount never enters your taxable income in the first place.

The most common deductible schemes include:

• Occupational pensions arranged by your employer
• Private instalment pensions (rate pensions)
• Private life annuities and lifelong pensions
• Certain capital pensions and old capital pension schemes (subject to transitional rules)

The exact deduction rules depend on the type of scheme, the contribution limits and whether the contribution is paid privately or via the employer.

A key distinction is between:

• Terminating schemes (e.g. instalment pensions): Paid out over a fixed period, for example 10–30 years. Contributions are deductible within certain limits, and the payout is taxed as personal income during the payout period.
• Lifelong schemes (life annuities): Paid out as an ongoing benefit for the rest of your life. Contributions are deductible (often with more flexible limits), and the payout is taxed as personal income for as long as you live.

The choice between terminating and lifelong schemes depends on your time horizon, your total pension assets and your desired payout profile.

The key is to choose schemes based on:

• Time horizon until retirement
• Whether you pay top-bracket tax today
• Your expected income and tax level in retirement
• Desired payout profile (shorter, higher payouts vs. lifelong security)
• Coordination across all your schemes (employer schemes, private schemes, spouse’s schemes, etc.)

In practice, it is often relevant to combine several schemes so that you both achieve a good tax effect today and a balanced payout over your retirement years.

In addition to the ordinary schemes, self-employed persons can use the 30% scheme:

• You can pay up to 30% of the year’s business profit into a life annuity (ongoing benefits) with deduction.
• The scheme is a special option that only applies to self-employed persons and certain co-owners.

The 30% scheme can be an effective way to build up pension savings and at the same time reduce the taxable business profit.

Paying into pension can be an effective tool for tax planning because:

• You get a deduction or exemption when the contribution is paid in
• Taxation is postponed until the payout in the future
• In many cases, the tax value of the deduction today is higher than the tax you pay on the payout later

This is particularly relevant if you currently pay top-bracket tax, but expect a lower tax level when you retire.

For individuals above the top-bracket tax threshold, pension is an attractive tool because contributions can reduce personal income that is subject to top-bracket tax.

In practice, this means that you reduce the part of your income that is taxed at the highest marginal rate today and move the taxation to a later time, where your income – and thus your tax rate – is often lower.

However, it is important to coordinate pension contributions with your overall financial situation, other deductions and your expected retirement income.