As a result of the restrictions on the options for accruing a pension, many people now have greater scope to build up their own retirement provision in the form of an annuity. The premium or contribution is tax-deductible; the benefit will be taxed when it is paid out.
Pillars
In the Netherlands, the pension system is divided into three pillars:
- statutory pension schemes (AOW)
- employees’ pensions
- other retirement benefits
An annuity falls under Pillar 3. All taxpayers are eligible to make use of this option. However, the deduction of the premium is subject to the condition that there is a pension gap.
And you must claim the premium or contribution as a deduction in the year in which you pay it (except in the event of a business closure). So if you wish to claim the deduction in 2021, you must have paid the premium or contribution by 31 December 2021 at the latest.
Pension gap
Your pension shortfall (in annuity terms, this is known as the annual allowance) is calculated as follows:
(13.3% * (income in Box 1 -/- €12,672)) -/- (6.27 * A).
A maximum of €112,189 of your income in box 1 is taken into account. The 2021 annual allowance is based on your income and factor A for 2020. Factor A represents the amount of pension you accrued in the year in question. You can find this factor on your pension statement.
If, over the previous seven years, you have paid less in premiums or contributions towards an annuity than the annual allowance applicable for that year, you may make up the shortfall. This is known as the booking space. In 2021, this amount may be deducted up to a maximum of €7,489 (or €14,785 if you are up to 10 years younger than the state pension age).
Are you wondering how much of your annuity premium or contribution you can claim as a tax deduction? VWG will be happy to calculate this for you.
Premium or contribution
In this article, we keep referring to ‘premium’ and ‘contribution’. You pay a premium when you take out an annuity policy with an insurance company. If you opt for a bank savings annuity, you make contributions to a restricted savings account with a bank or into an investment product.
Director and major shareholder (DGA)
For many years now, directors and major shareholders (DGA’s) have been prohibited from accruing pension entitlements with their own private limited company. The law no longer recognises the director’s own private limited company as a qualifying insurer. With a qualifying insurer (an insurance company or pension fund), the director and major shareholder may, of course, still accrue pension entitlements.
Directors and major shareholders who do not accrue pension entitlements have a factor A of €0. As a result, they generally have annual allowance. And often also have a reserve allowance.
Employees
Many employees are still accruing a pension through the pension fund for the sector in which they work. However, in many cases, these pensions are based on a defined-contribution scheme. As a result, employees nowadays often have annual and reserve allowances to pay contributions or to make payments into an annuity.
Entrepreneur
Business owners must also deduct the allocation to their retirement reserve from their annual allowance. However, they are permitted to convert their entire retirement reserve into an annuity.
In addition, business owners can make use of generous options for deducting contributions or payments towards an annuity in connection with the cessation of their business.