Since the introduction of the Future Pensions Act (Wet toekomst pensioenen – WTP), a significant tax change has taken effect in the Netherlands that many people are still unaware of.
As a result, many individuals – particularly self-employed entrepreneurs (ZZP), entrepreneurs with their own BV (DGA), those with little or no pension savings, and employees with a pension shortfall – can achieve significant tax savings by making use of the available pension contribution options.
What has changed?
The most important changes are:
- The so-called annual pension contribution allowance (jaarruimte) has increased significantly. Previously, the calculation was based on approximately 13.3%; it is now possible to make tax-deductible pension contributions of up to 30% of the pension base, provided there is a pension shortfall.
- The unused pension allowance from previous years (reserveringsruimte) has also been expanded. Unused amounts can now be used retrospectively for up to 10 years (previously 7 years).
- Under certain conditions, even individuals who have reached the AOW pension age can make use of this option for several more years.
How can you save tax this way?
If someone has a pension shortfall, they can make contributions to:
- a pension savings account (lijfrentespaarrekening);
- a pension investment account (lijfrentebeleggingsrekening);
- or a pension insurance policy (lijfrenteverzekering).
These contributions can be deducted in Box 1, thereby reducing taxable income.
Example
Annual business profit: €80,000
Calculated annual pension allowance (jaarruimte): €12,000
Pension contribution: €12,000
In this case, taxable income decreases from €80,000 to €68,000.
Depending on the applicable tax rate, this can result in tax savings of several thousand euros.
It is important to understand that this is not a permanent tax exemption, but a tax deferral. Tax will be payable when the pension is paid out at a later date, but in many cases a lower tax rate may apply at that time.
Who can particularly benefit from this?
This option may be particularly interesting for:
- self-employed entrepreneurs (ZZP);
- entrepreneurs with their own BV (DGA);
- those without an employer pension scheme;
- employees who have accumulated only a limited pension;
- those who did not build up a pension for several years;
- and those who pay a significant amount of personal income tax due to their high income.
What should you pay attention to?
You cannot deduct an arbitrary amount.
The Dutch Tax Administration (Belastingdienst) calculates the maximum deductible amount each year based, among other things, on:
- the previous year’s income;
- pension accrued through an employer (Factor A);
- and any unused pension allowance from the previous 10 years.
Useful advice
Before preparing the annual personal income tax return (IB-aangifte), it is worth checking for each client:
- Is there a pension shortfall?
- Is there still an available annual pension allowance (jaarruimte)?
- Is there any unused allowance from previous years (reserveringsruimte)?
- Would it be worthwhile to make a pension contribution before the end of the year?
In many cases, this can save several thousand euros in personal income tax, while also increasing the client’s own pension savings.