How does annual allowance work?

Pensions come in various forms. The Dutch system rests on three main pillars and a fourth informal pillar. These pillars are the AOW (1st pillar), supplementary pension (2nd pillar, or collective) through the employer, individual pension provisions (3rd pillar, or annuity) and personal investments or possessions (4th pillar).

Not everyone in the Netherlands has a pension, and even if they do, they do not always accrue enough. This can cause a pension gap. 'Jaarruimte' (annual allowance) is the amount you are allowed to use to fill such a pension gap. Jaarruimte is essentially a maximum annual tax advantage that you may personally deposit for your pension. With this, the government stimulates extra pension accrual.

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Tax benefits of 'jaarruimte'Your contribution to the jaarruimte is deductible from your income tax. Your contribution also yields an immediate tax refund on the deposited premium. Moreover, the deposited amount and the return on it remain free from wealth tax (box 3) as long as it is reserved for your pension.

Later, upon retirement, you will have to pay something. The benefit is then taxed, but at a lower rate. This is how jaarruimte helps to prevent a gap after retirement in a tax-friendly manner.

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Calculation of the 'jaarruimte' in 2025Your jaarruimte in a specific year depends on your pension shortfall in the previous year. For the 2025 jaarruimte, you therefore look at your income and pension accrual in 2024. The Tax Authorities (Belastingdienst) set a formula for this. The jaarruimte is now 30% of the income intended for pension (premium basis).

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The formula for 2025 is as follows:

Jaarruimte = 30% × (income in 2024 – the AOW-franchise) – (6.27 × factor A of 2024). (If you did not accrue a pension through work in 2024, factor A = 0 and that term is omitted.)

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Important concepts for the calculation:Premium basis / Pension basis:

The premium basis is the part of your gross income over which you may accrue pension. It is calculated by reducing your gross income of 2024 with the AOW-franchise (determined by the government).

Income for jaarruimte includes salary from employment, profit from enterprise, and certain benefits, plus, for example, taxable addition for private use (company car) or received alimony.

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AOW-franchise:

AOW-franchise is the part of the income over which you do NOT accrue pension, because that part is already covered later by the AOW benefit. The franchise is determined annually. In 2025, the AOW-franchise is € 18,475. If you earn less than this amount, you basically have no jaarruimte (your income is fully covered by the AOW).

The income above € 18,475 counts as the premium basis over which you can calculate your jaarruimte.

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Please note: for the jaarruimte calculation, the franchise is not reduced by the part-time percentage. Even someone who works part-time receives the full € 18,475 deduction.

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Factor A:

This is the pension accrual in the previous year with a pension fund or insurance (the second pillar). It is the amount by which your annual pension right increased in 2024 due to your employer-provided pension.

You will find Factor A on the Uniform Pension Statement (UPO) from your pension fund. Do you not have an employer or did you not accrue a pension through your work in 2024? Then the Factor A = 0. In the formula, Factor A is multiplied by 6.27 to correct the gross jaarruimte amount (pension in the second pillar comes from gross wages) for pension accrual already received.

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Calculation example 'jaarruimte'Suppose, in 2024 you had a gross income of €60,000 and you did not have a pension scheme through an employer (then your Factor A = 0).

The premium basis is then €60,000 – €18,475 = €41,525. Your jaarruimte for 2025 is 30% of €41,525 = € 12,457.50 for the year.

This means that in 2025 you may deposit up to €12,457 in pension contribution (premiums) into an annuity product and deduct it from tax.

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To make it easy, we have this handy tool for you: [Link to our tool]

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Have you never accrued a pension? Then you may have a lot of 'reserveringsruimte' (catch-up allowance) left over! See here how to calculate it: [Link to the explanation]

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Please note: If you earn significantly more, a maximum income applies that is counted. In 2025, the maximum pensionable income is € 137,800; if you earn more, you still count a maximum of €137,800. This means the maximum achievable jaarruimte in 2025 is approximately € 35,798 (with an income of €137,800 and no pension accrual).

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Other rules:Some important rules to make optimal use of your jaarruimte.

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No shortfall, no deduction:

Without a pension shortfall, there is no deduction allowance for an annuity. This is determined objectively via the above formula and data (income, franchise, factor A).

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Jaarruimte is a total amount:

The deduction applies to all annuity products combined. You can spread the amount across products, but not double it.

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You cannot exceed the jaarruimte:

You do not receive an immediate tax benefit for the extra part you deposit. Possibly if you had 'reserveringsruimte' then yes, but generally not.

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The premium must be deposited in time: 

In practice, this means before 31 December of the year for which you want to claim the deduction (depositing later counts for the new year).

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Jaarruimte is personal:

You cannot use a partner's unused allowance for yourself (and vice versa); everyone has their own jaarruimte based on his/her income.

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The deposited money is locked in: 

The deposited amounts are locked in until retirement age (unless certain exceptions such as long-term incapacity for work occur). Therefore, you cannot withdraw the saved pension capital prematurely without fiscal consequences.

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Vive's handy tool

At Vive, we try to make jaarruimte as easy as possible. That is why we have created various tools to calculate it simply. You can find the jaarruimte tool here: [Link to our tool]