Continuing to work rather than drawing a pension early can result in lower tax and a higher pension over the long term, according to new analysis from the Swedish Pensions Agency.

The findings, published in the report Pension and Tax 2026, showed that differences in the taxation of wages and pensions, combined with additional pension entitlements accrued through continued employment, can lift both current income and lifetime pension payments.

“Pensions are taxed more heavily than wages at the same age. For many people, this means they keep more money by continuing to work instead of taking out their pension,” Swedish Pensions Agency analyst, Stefan Granbom, said.

Sweden’s earned income tax credit means that income tax on wages is lower than tax on pensions. From the year an individual turns 67, taxation is reduced further for both wages and pensions through a higher basic allowance. Those who continue working beyond 67 also benefit from an enhanced earned income tax credit.

“For people born in 1959, the lower taxes apply from 2026, the year they turn 67. For those born in 1960, the higher basic allowance applies only from January of the year they turn 68, because they have a higher benchmark retirement age of 67,” Granbom said.

The report also highlighted tax planning considerations for individuals who combine work and pension income. In some cases, total income may be high enough to trigger state income tax.

Beyond tax, working longer can strengthen retirement outcomes in several ways, the report found. Continued employment generates new pension entitlements, while delaying withdrawals means pension income is paid over fewer years, increasing the monthly amount. Lower tax rates from age 67 (for those born in 1959) further enhance net income.

Taken together, these factors “often result in a higher monthly pension for life,” the agency said. However, it noted that for individuals whose retirement income largely consists of guarantee pension, continued work does not always increase the level of public pension received.

The analysis is based on illustrative examples rather than individual calculations.

“The report Pension and Tax 2026 is illustrated with typical examples and does not show exact taxes for individual cases,” Granbom said.

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