Everything you need to know about Annual Allowance

Annual scope (Jaarruimte) is an important concept for everyone who wants to get the most out of their pension savings. It offers the opportunity to receive tax benefits on the amounts you set aside for later. In this article, you will learn all about annual scope, how to calculate it, and why it is so important for your financial future.

What is Annual Scope?

Annual scope (Jaarruimte) is the maximum amount you are allowed to deposit tax-free into your pension scheme in a year. This maximum amount is determined by your income from the previous year. If you have built up less pension - below the maximum amount - you can use this scope to supplement your pension. 

Why is Annual Scope important to me?

Annual scope is important because it helps you build up your pension; you even receive some tax benefits for it. By utilising your annual scope, you can reduce the amount of tax you pay. As a result, your pension pot grows and you ensure a comfortable old age, without paying unnecessary tax. It is good to know that as soon as your pension pot is converted into a pension benefit, you will still pay tax. However, that tax is lower than the tax you would pay now. 

How do I calculate my Annual Scope?

Calculating your annual scope can be complex, but fortunately, tools and calculators are available to help you with this. These offer handy calculation aids to work out your annual scope. But, of course, you can also do it yourself. 

Steps to calculate your Annual Scope:

Example 1: Calculating Annual Scope 

Assume your income in 2024 is €50,000 and your pension accrual was €0. The annual scope is calculated as follows:

1. Calculate your own gross income: For this, gather your annual statements or profit figures if you are an entrepreneur. For easy calculation, we will say your income is €50,000.
2. Look up this year’s AOW franchise: This is the amount over which you are not allowed to accrue a pension; in 2024, this is €17,545. The reason for this is that this is already included in your AOW, so it is already well-arranged by the government. We call the result 'the basis.'
3. Next, check the maximum pension accrual according to the tax authorities: You can find this on the tax authorities' website (you can find it here). In 2024, this is 30% of your gross income. 
4. (Optional) Now look up your Factor A: You can find this on your Uniform Pension Overview (UPO). The UPO is the annual overview you receive from your pension fund. In this calculation, you are not building up a pension, so we calculate with €0. 

‍

Please note, you only have this if you are already with a pension fund - for example, if you fall under a collective pension fund. In that case, you are already accruing a pension and you may no longer have any annual scope. 

5. Any annuity deposits: If you have already made annuity deposits somewhere, for example with Vive, you must deduct this in the formula. We are setting this to €0 for now, as we assume you are not accruing any extra pension.
6. Now calculate your annual scope: For this, you use the following formula, ((Gross income − AOW franchise) × Maximum pension accrual (%)) − (6.27 × Factor A) − any annuity deposits 

‍

Example: 

Your income is €50,000 and your Factor A is €0. 

The calculation is then: ((€50,000 −€17,545) × 30%) − (6.27 × €0) - €0 = €9,586.50

‍

7. Note the following points:Maximum annual scope for 2024 is set at €36,077Maximum income over which you may calculate annual scope is €137,800

‍

Example 2: Optimally utilising your Annual Scope 

You have the option to use your annual scope from previous years - provided you have not yet fully utilised it. We also call this reserve scope (reserveringsruimte). With this, you can catch up on the unutilised annual scope from the past ten years. Use the catch-up scope (also called reserve scope) for this. The maximum reserve scope in 2024 (to catch up for up to 10 years back) is €41,608

You can look up your catch-up scope (reserve scope) here.

‍

Benefits of utilising Annual Scope

• Tax Advantage: You pay less tax on your deposits, which leaves you with more for later (of course, you must declare this).
• Higher Pension Accrual: You build up more faster because there is more in the pot (money makes money), meaning you have more money available when you retire.
• Flexibility: Decide yourself how much and when to deposit. 

‍

Tips for Maximally Utilising Annual Scope

1. Start calculating and planning on time.
2. Make use of online tools and calculators. You can use our calculator for this, view the government's one here: Calculate your deductible annuity premium (from 2016) (belastingdienst.nl)
3. Consult a financial advisor for personal advice. That is always best if you cannot work it out. 

‍

Conclusion

Annual scope is a powerful tool for improving your pension accrual. By cleverly using the opportunities offered by the tax authorities, you can ensure a financially worry-free old age. Take the time to calculate your annual scope and plan your financial future today!

‍