Yes/no to a tax credit

The tax benefit arises because the tax payable to the state is reduced by 2.5 per cent. Once the reduced tax has been paid, the net amount is credited to your account.

Your savings scheme includes a tax payable to the state, which is due during payouts. As your savings grow, so does the tax. However, since 2015, The Cost-of-Living Allowance Fund has been able to pay the reduced tax to the government when you turn 60 and are eligible for a payout.

Once the tax has been paid, a net amount will appear in the LD Account. The net amount belongs entirely to you, as it no longer includes any tax due, and it is only your own savings that earn interest. However, we will continue to deduct pension return tax from the annual return credited to the account.

The standard tax amounts to 25 per cent of the balance at the end of 1979 plus 40 per cent of the remainder. This results in a tax of approximately 39.5 per cent of the value of the savings. The reduced tax amounts to 22.5 per cent of the balance in 1979 plus 37.5 per cent of the remainder. This results in a tax of approximately 37 per cent.

There is a financial advantage to having a net amount in the account, even though the return in kroner and øre will be lower on a net amount than on a gross amount. This is because the entire return on a net amount accrues to the member, as no tax is deducted from the return.

The more your savings are allowed to grow, the greater the benefit from the tax credit. This also applies once the savings have been converted into a net amount.