Tax allowances for recipients of old-age pensions from the National Insurance scheme or AFP

The tax deduction is a deduction in income tax and National Insurance contributions for pensioners with a combined pension income (gross amount) up to a certain amount. Each year, the Norwegian Parliament determines the size of the tax deduction and the thresholds below which you can claim the deduction. The following rates are for the income year 2015:

For pensions up to NOK 184,800, you can have a maximum tax deduction of up to NOK 29,880. You cannot be granted a tax deduction that is greater than the sum total of your income tax and National Insurance (NI) contributions. The allowance is reduced for pensions above NOK 184,800 and is inapplicable once the pension is NOK 536,859 or more. If you take out less than a full pension or pension for only parts of the year, the tax deduction and income thresholds will be reduced.

Who is entitled to a tax deduction?

  • recipients of old-age pension from the NI scheme
  • recipients of AFP in the public sector
  • recipients of a corresponding pension from an EU/EEA country. 'Corresponding pension' means a pension from general, mandatory pension schemes that include all inhabitants of the country in question.
  • Recipients of supplementary benefits for persons who have only lived in Norway for a short period.

If you only receive other pension disbursements, such as seamen's pension or a pension under the guaranteed early retirement scheme from the Norwegian Public Service Pension Fund, you will not be entitled to the tax deduction.

How the tax deduction is calculated

The basis for calculating the tax deduction is total pension income. The following benefits are included in the total pension income:

  • taxable employment-related and non-employment-related pensions, including pensions from abroad that are liable for tax in Norway
  • pensions from abroad which are not taxable in Norway
  • benefits derived from surrendered property
  • an annuity that is part of an employment-related pension scheme, except for payments from a collective annuity established after the income year 2006, the premium for which is taxed as income from employment
  • disability pension from Norwegian Public Service Pension Fund and other arrangements. 
  • supplementary benefits for persons who have only lived in Norway for a short period.

The new AFP from private sector will not give an independent right to tax deduction for pension income.

During the income year, did you begin drawing an old-age pension from the National Insurance scheme or AFP?

In the income year during which you begin to draw retirement pension from the National Insurance scheme or early-retirement pension, pension income received prior to the date on which the pension began to be drawn will not be included in the total pension income.

If, during the income year, you have received a disability benefit that has been replaced by old-age pension from the National Insurance scheme on reaching 67 years of age, and you have not previously drawn benefits that provide entitlement to a tax allowance, the disability benefit and any pension income received prior to the transition to the old-age pension from the National Insurance scheme are not included in the total pension income in the transition year.

Tax-free benefits that are not included in total pension income:

  • compensation supplement for the new early-retirement pension (AFP) in the private sector
  • supplementary benefit for spouses from the National Insurance scheme for recipients of a retirement pension and early-retirement pension when the effective date is before 1 January 2011

If you have only a minimum pension, the allowance ensures that you do not pay tax on the pension.

Examples of calculation of tax deductions

A pensioner with an old-age pension of NOK 150,000:

The tax allowance for old-age pension/AFP is a maximum of NOK 29,880 when the old-age pension is fully drawn for the whole year and when the old-age pension/AFP does not exceed NOK 184,800.

Eva Hansen draws 100 per cent of her old-age pension and is a pensioner for the whole year. Her pension income is NOK 150,000. She has no other income.

Eva Hansen's tax before the tax allowance is NOK 21,338. Because she cannot be granted a higher tax allowance than the total of income tax and National Insurance contributions, her tax allowance is NOK 21,338. She therefore does not pay any tax.

A pensioner with an old-age pension of NOK 180,000 and NOK 20,000 in interest income:

Arne Hansen draws a full pension and is a pensioner for the entire year. His pension income is NOK 180,000. He has NOK 20,000 in income from interest. The pension income is less than NOK 184,800. He can therefore receive the maximum tax allowance if tax on the pension and interest income is NOK 29,880 or higher.

Arne Hansen's tax before the tax deduction is NOK 33,281. The maximum tax deduction is NOK 29,880. Arne Hansen's tax is NOK 3 401.

Size of the tax allowance

Maximum tax allowance for 2016 is NOK 29,880.

The size of the tax allowance is reduced according to what proportion of the old-age pension from the National Insurance scheme you draw (retirement percentage). If the retirement percentage is 40 per cent, the tax allowance will be 40 per cent of the maximum allowance (see section on retirement percentages).

If you are drawing early-retirement pension in the public sector and also receiving income from employment at the same time, the pension will be reduced against the income from employment. The tax allowance will also be reduced by the same percentage as the pension. For example, if you receive 35 per cent of a full early-retirement pension, the tax allowance will be 35 per cent of the maximum allowance.

The size of the tax allowance will be calculated according to the number of months you have received a pension for. If you have received a pension for 8 months, you will be granted a tax allowance for 8 of the 12 months of the year.

The tax allowance is reduced for pensions above NOK 184,800 and is inapplicable once the pension is NOK 536,859 or more.

Retirement percentage

Old-age pension from the National Insurance scheme can be drawn at the time you decide once you are 62 years old. In addition to choosing when, you can choose how much of the pension you want to draw at any time. The lowest pension level is 20 per cent, increasing in steps to 40, 50, 60, 80 or 100 per cent. If you change your retirement percentage during the income year, a weighted average for the year is calculated. If, for example, you draw 50 per cent pension in the first six months of the year, and 100 per cent pension in the last six months, the weighted average for the income year will be 75 per cent.

Tapering of the tax allowance

If you draw a full old-age pension from the National Insurance scheme or from an AFP scheme for the entire year and the pension exceeds NOK 184,800, the tax allowance is tapered by:

15.3 per cent of the total pension income in excess of NOK 184,800 up to and including NOK 278,950. 6.0 per cent of the total pension income between NOK 278,950 and NOK 536,859.

You receive no tax allowance when your total pension income is NOK 536,859 or more. If you draw a partial pension and/or only receive a pension for part of the income year, the maximum allowance and the thresholds are reduced in proportion to the retirement percentage and/or number of months of pension.

Example of tapering of the tax allowance for a pensioner with an old-age pension of NOK 240,000:

Bente Hansen draws 100 per cent of her old-age pension and is a pensioner for the whole year. Her pension amounts to NOK 240,000.

The allowance is tapered as follows:

Maximum tax allowance (for income up to NOK 184,800) NOK 29,880

- tapered (240,000–184,800) x 15.3% NOK 8,446

= Bente Hansen tax allowance NOK 21,434

Bente Hansen's tax before the tax allowance NOK 42,446

- the tax allowance NOK 21,434

= Bente Hansen's tax NOK 21,012

Example of tapering of tax allowance for a pensioner with an old-age pension of NOK 480,000:

Peder Hansen draws 100 per cent of his old-age pension and is a pensioner for the whole year. His pension amounts to NOK 480,000. The pension income exceeds NOK 278,950 and the tax allowance is therefore tapered in two stages. The tax allowance for Peder Hansen is calculated as follows:

Maximum tax allowance NOK 29,880

- tapered by (273,650–184,800) x 15.3% NOK 14,405

- tapered by (480,000–278,950) x 6% NOK 12,036

= Peder Hansen's tax allowance NOK 3,412

Peder Hansen's tax before the tax allowance NOK 117,166

- tax allowance NOK 3,412

= Peder Hansen's tax NOK 113,354

Example of calculation of tax allowance for an old-age pensioner who has drawn a 50 per cent pension throughout the year and has also received a wage:

Peder Olsen (69 years old in 2016) draws a 50 per cent old-age pension from 1 January 2016 and continues working. The old-age pension is NOK 95,000 and pay is NOK 150,000. Since Peder Olsen draws only 50 per cent of his pension, the maximum tax allowance is reduced by 50 per cent to NOK 14,940.

In addition, the tax allowance is tapered by 15.3 per cent of the pension income between NOK 184,800 and NOK 278,950. These thresholds are reduced by the same percentage as the pension he draws.

If Peder Olsen draws 50 per cent old-age pension, the tax allowance is tapered once his old-age pension exceeds 50 per cent of NOK 184,800 = NOK 92,400.

The allowance is tapered as follows:

Maximum tax allowance (for 50% pension up to NOK 92,400) NOK 14,940

- tapered by (95,000–92,400) x 15.3% NOK 398
= Peder Olsen's tax allowance is NOK 14,542

Peder Olsen's tax before tax allowance NOK 43,223
- tax allowance NOK 14,542
= Peder Olsen's tax NOK 28,681

Example of calculation of tax allowance for old-age pensioner who draws 50 per cent pension from 1 July 2016 and also receives wages

Erna Olsen draws 50 per cent old-age pension from 1 July 2016. Her pension is NOK 50,000 and pay is NOK 210,000. Since Erna Olsen only draws a 50 per cent pension, the maximum tax allowance of NOK 29,880 needs to be reduced by 50 per cent. The maximum tax allowance for Erna Olsen is then NOK 14,940.

She received a tax allowance only for the months in which she draws a pension. Since she only drew her pension from 1 July, her maximum tax allowance is 6/12 of NOK 14,940, i.e. NOK 7,470.

In addition, the tax allowance is tapered by 15.3 per cent of the pension income between NOK 184,800 and NOK 278,950. These thresholds are reduced by the same percentage as the pension she draws.

Since Erna Olsen only draws a 50 per cent pension, the tax allowance is tapered by 15.3 per cent of 50 per cent of the pension income. For Erna Olsen, the tax allowance is therefore tapered once the old-age pension exceeds 50 per cent of NOK 184,800= NOK 92,400. Because she has only drawn a pension for half the year, the threshold for the pension income is also reduced by 6/12, i.e. NOK 92,400x 6/12 = NOK 46,200. The threshold is therefore NOK 46,200.

The allowance is tapered as follows:

Maximum tax allowance (for 50% pension for half a year up to NOK 46,200) NOK 7,470
- tapered by (50,000–46,200) x 15.3% NOK 581
= Erna Olsen's tax allowance is then NOK 6,889

Erna Olsen's tax before the tax allowance NOK 49,853
- tax allowance NOK 6,889
= Erna Olsen's tax NOK 42,964