What is an employer annuity and how does it work?

For many employees, pensions still feel like an abstract concept. Contributions are paid every month, but exactly what you are accruing often remains unclear. An employer-sponsored annuity changes that. You build up visible assets in an account held in your name. But how exactly does it work? And what makes it different from a traditional pension scheme?‍

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What is an employer-sponsored annuity?

An employer-sponsored annuity is a scheme whereby your employer periodically pays a sum into your personal annuity account. Unlike with a collective pension fund, you do not accrue an abstract entitlement, but rather individual assets. These assets are built up individually and remain transparent, even if you change jobs.‍

For tax purposes, an annuity falls under the third pillar. This means that, under certain conditions, the contributions may be tax-deductible from your income. The exact tax options depend on your personal situation and available annual allowance. You will later pay income tax on the regular payments under Box 1, but this rate is (at least for now) much lower than what you pay at present. You currently pay 17.85% tax on your pension and state pension (AOW) up to €38,883 (2026).‍

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How does it work in practice?

The employer periodically pays a sum into the employee’s annuity account. That money is invested and grows in line with the return. As an employee, you can use an app or online portal to track how much you have accrued and what your expected pension will be. Upon retirement, you will receive the accrued capital as a regular payment.‍

It is important to note that the value of your assets fluctuates in line with the investments. There is no guaranteed return, but many providers automatically adjust the level of risk to suit your age and profile.‍

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Difference from a traditional pension

With a group pension scheme, you and your colleagues pay contributions together and share the risks. Decisions are made centrally for all participants, and you often only see where you stand when you receive your annual statement. With an employer-sponsored annuity, you have your own account with ongoing transparency.

Both forms have advantages and disadvantages. A collective pension offers risk-sharing and security. An employer-sponsored annuity offers transparency and flexibility.‍

The investment strategy also differs. With a collective pension fund, investments are often made based on the average age of all participants. This means that a 25-year-old with the same risk profile invests in the same way as a 55-year-old. With an employer-sponsored annuity using a lifecycle strategy, the risk is tailored to your age. Being younger means greater growth potential; being older means greater security. This is more in line with how long-term investing works.‍

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Why do employers opt for this?

More and more employers, particularly in the SME sector, are opting for an employer-sponsored annuity. The reasons vary. Some companies are not required to have a pension fund and are looking for an accessible way to arrange pensions for their employees. Others want to give employees greater insight and a sense of ownership.

Pensions are also increasingly becoming part of employer branding. Employees actively compare terms of employment and value transparency. A modern pension scheme where you can see what you are accruing can help attract and retain talent.‍

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Benefits for employees

The main benefit is transparency. You can see exactly what you have accrued and how your assets are performing. Furthermore, the accrued assets remain personal and are not tied to a single employer. Many employees feel that this makes the pension feel more like their own.‍

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Are there any drawbacks to employer-sponsored annuities?

An employer-sponsored annuity also has some points to consider. You are more dependent on investment returns and there is less collective risk-sharing. This requires a degree of financial involvement. At Vive, this is addressed through automatic investment using a lifecycle strategy, whereby the risk decreases as you approach retirement.

The way employees view retirement is changing. Transparency, flexibility and personal insight are becoming increasingly important. An employer-sponsored annuity is well suited to this.‍

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Would you like to know how Vive handles this for employers? Take a look at the brochure for SME employers.