You build up your pension by setting money aside in an annuity, but you can easily forget about it. To help you take advantage of your annuity, we've highlighted a few benefits.

Also, make sure you start building your pension on time. Because the sooner you start building up your pension, the more benefit you will receive later.

Annuity and Tax Benefits

What exactly does an annuity entail? An annuity allows you to save or invest for retirement. The amounts deposited when building up your pension are tax deductible in your tax return. This way, you get a tax benefit from the money you set aside for your retirement. The deduction can be up to 49.5% of the amount you put aside for your pension, without the usual deduction rate (page in Dutch) when you have a high income. When you retire, you will receive the saved amount in the form of a benefit, which is considered income at that time and can be taxed. You will receive your pension benefit on top of the AOW benefit. Most likely, the income from your pension allowance and AOW (state pension) will be lower than your current income, so you will end up paying less tax. 

Example

Peter has opened a pension account with a bank and sets aside €250 every month. In his tax return, he reports the deposited contribution of €3,000 as a deduction. His tax rate is 49.5%, so he does not have to pay tax on this €3,000. This gives him a benefit of €1,485 on his tax return.

Upon retirement, Peter receives a benefit from his annuity ("built-up pension") in addition to his state pension. This payment, together with his AOW and pension benefit, is taxed according to the income tax rates at the time. This rate is often lower than the rate Peter pays now.

More than Just a Tax Benefit

You don't take out an annuity just for the tax benefit; it mainly serves to supplement your pension. It allows you to ensure that you can maintain your current standard of living or choose to retire early. If you set aside enough, a trip around the world in your retirement years is also a nice outlook.

Pension Account

The money saved for your pension cannot just be deposited in a regular savings account. You have to open a special blocked pension savings- and/or investment account, or take out an annuity insurance. This blocked pension account does not count towards wealth tax, which can also give you an extra tax benefit.

You determine the amount and frequency of your deposits, and also when you stop depositing. Even with a monthly deposit of €100, you can stop at any time. The deposited money remains in your account, but the expected final amount may be lower if you stop depositing earlier. Note that early withdrawals are taxed, including revision interest as a penalty (20% on top of the tax of around 40%).