The tax benefits of pension investing

Pension investing takes place via a blocked bank savings or investment account specifically intended for your old-age provision. This form of pension accrual falls fiscally under box 1 of the Dutch income tax, not box 3 where your ordinary assets fall (crypto, real estate, and for example, shares). The tax advantage works in two ways: your contribution is deductible from your taxable income, and the accrued assets do not count towards the capital yield tax. This double advantage makes pension investing financially very attractive, especially for entrepreneurs or people who do not accrue a pension through an employer.

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Pension Investing Deductible from Your Income

Your contribution for pension investing within your annual allowance (and any reservation room) may be fully deducted from your taxable income in box 1. As a result, you immediately pay less income tax, which means you receive money back within a few months after your tax return. Concrete example: if you deposit €3,000 into your pension account and your marginal tax rate is 36.97%, you will receive approximately €1,109 back via the provisional refund. For entrepreneurs with fluctuating incomes, this is extra valuable, because in good years you can contribute more and thus secure more tax benefits.

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Advantages of Pension Investing Compared to Ordinary Savings

The advantage of pension investing becomes clear when you compare it with ordinary saving or investing. With a normal savings or investment account, your contribution is not deductible and you pay annual capital yield tax in box 3. With pension investing, you benefit from two concrete advantages: the contribution lowers your taxable income, meaning you pay less tax now, AND you pay no capital yield tax on the accrued pension capital. Over a period of twenty years, this difference can amount to tens of thousands of euros in extra pension. Furthermore, with pension investing you can profit from investment returns, while ordinary savings yield almost nothing in this time of low interest rates.

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Pension Investing Box 1 versus Box 3

Pension investing in box 1 has fundamental fiscal advantages compared to asset accumulation in box 3. In box 1, your complete contribution is deductible up to your maximum annual allowance (and reservation room, if you have this), while assets in box 3 have no deduction whatsoever. The difference becomes larger as your assets grow: if you build up €100,000 in box 3, you pay annual capital yield tax on it. That same amount in a pension account (box 1) remains completely free of wealth tax. For entrepreneurs who want to build up assets, this difference is crucial for the eventual pension payout.

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How Much Tax Advantage Do You Concretely Get

This is where it gets interesting. Every euro you contribute for your pension immediately lowers your taxable income. The result? Money back via your declaration. Exactly how much depends on your tax bracket. If you fall into the first bracket, you get around 36 to 37 per cent back. If you are in the highest bracket, this increases to 49.5 per cent. The more you earn, the greater the advantage.

A calculation example: if you contribute 10,000 euros within your annual allowance, you will receive between 3,600 and 4,950 euros back from the Tax Authority. That is no small matter. The effect is strongest for DGA's and entrepreneurs who fall into the highest tariff. Good to know: your annual allowance is calculated based on your income from the previous year. It is therefore always an allowance determined afterwards.

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Conditions for Fiscally Advantageous Pension Investing

To benefit from the full advantage of pension investing, you must meet a few conditions. Your contribution must fall within your annual allowance or reservation room, otherwise no deduction is possible. The assets are blocked until your AOW age; early withdrawal means loss of the fiscal advantage plus possibly a penalty (revision interest). The Tax Authority requires that you have a pension shortfall to receive a deduction, but this automatically applies to self-employed individuals (zzp'ers) and entrepreneurs without a pension scheme. Upon payout, you do pay income tax on your pension, but often at a lower rate because your income after retirement is usually lower.

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Recent Improvements Make Pension Investing Even More Attractive

Since 1 January 2023, pension investing has become deductible against better conditions. The fiscal annual allowance increased to 30% of your income with a maximum of €35,798 in 2025. Additionally, you can now utilise 10 years instead of 7 years of unused annual allowance via reservation room. For entrepreneurs with fluctuating incomes, this is ideal: in less prosperous years, you only use your annual allowance, in good years you catch up on missed years with your reservation room. These improvements mean you can contribute more with maximum tax advantage, which can significantly increase your eventual pension.

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Start Pension Investing Today

Pension investing tax advantage makes pension accrual not only sensible but also financially attractive. You immediately get money back via the tax return, your assets grow tax-free, and you build a solid pension. At Vive, we make pension investing simple and accessible via our app, so you benefit optimally from all fiscal advantages. Open an account today and start accruing your pension with tax advantage.

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