There are plenty of options for supplementing your pension in a tax-efficient way through an annuity. It is tax-efficient because you can deduct the premium or contribution from the income on which you pay income tax.
Any premium or contribution towards an annuity that you wish to deduct from your 2025 income must have been paid by 31 December 2025 at the latest. Where payments are made within the deduction limit for capital gains on the cessation of business or your tax-deductible retirement reserve, you may deduct any premiums or contributions paid before 1 July 2026 from your 2025 income.
Space
The premium or contribution towards an annuity is tax-deductible to the extent that you have annual or reserve allowance.
The annual allowance for 2025 is equal to 30% of the total taken in 2024:
- profit (before the entrepreneur’s allowance);
- wages;
- profit from other activities;
- periodic payments and benefits in kind;
- less €18,475;
- (A maximum of €137,800 of income – before the deduction of €18,475 – is taken into account).
You must then deduct your pension accrual for 2024 from this amount (the contributions paid towards a retirement pension and a partner’s pension, or based on factor A).
The booking space consists of the annual allowances not utilised for deduction over the previous 10 years, provided that the allowance available in 2025 does not exceed €42,108.
Insurance or bank savings
You can choose from the following annuity options for your annuity scheme:insurance or an annuitybank savings.
If you opt for an annuityinsurance, that insurance will pay out for life (or for as long as you have agreed the benefit period to last). However, if you die before the benefits have started or before the full benefit period has elapsed, your entitlement to the benefits will lapse.
Annuitybank savings You set this up as a restricted savings account (or a restricted investment portfolio). Once this bank account or portfolio is empty, the payments will stop. However, if you die before the bank account or portfolio is empty, the remaining balance will be paid out to your heirs in the form of annuity instalments.
Pros and cons
A disadvantage of paying premiums for an annuity policy or making contributions to a bank savings scheme is that you are no longer free to spend the funds you have paid in. You can only do so once and to the extent that the annuity instalments are paid out. And, of course, you will then pay annual payroll tax and/or income tax on those payments.
The advantage is that payment of the tax is deferred. And in many cases, the tax rate at the time of payout is lower than it was when the contribution was deducted.