What is annuity and how does it work?

An annuity pension (lijfrente pensioen) is an individual way to build up an extra pension with a tax advantage. You deposit money into a special annuity arrangement during the accumulation phase, and from a later point in time (e.g., around your retirement date), you receive periodic payments in what we have named the disbursement phase. The annuity capital is placed with a bank, insurer, or investment institution in a blocked account that is subject to strict tax rules. This makes it possible to receive a tax advantage on your deposits during the accumulation phase, provided you have a pension shortfall and remain within certain tax limits. In the disbursement phase, the annuity is then paid out and you pay income tax on those payments - just like any other pension.

‍

Advantages of an Annuity Pension

An annuity pension offers several advantages compared to simply saving or investing for your retirement:

‍

Tax Advantage on Deposits:

Under the tax rules, you may deduct the premium or deposit you have made into the annuity pension from your taxable income, as long as the annual allowance (jaarruimte) or reserve allowance (reserveringsruimte) is not exceeded. This means that you get (partially) tax back on the deposit. You get the previously paid tax back because the deposit into the pension came from your net salary.

Later, when you are retired and receive the payment, you do pay income tax, but often at a lower rate because your income is usually lower after retirement (and a lower first tax bracket applies after the state pension age (AOW-leeftijd)).

So, you receive an extra tax advantage during the accumulation phase and are taxed less during the disbursement phase. This significantly increases the return on your pension pot.

‍

Exemption from Wealth Tax (Box 3):

The balance you build up in an annuity pension falls outside Box 3. As long as the money is blocked in the annuity (and you comply with the conditions), you pay NO tax on this wealth (wealth yield tax).

For comparison: with regular saving or investing, you would pay Box 3 tax above the exemption limit. Thanks to the combination of tax deduction in Box 1 and exemption in Box 3, building up a tax-friendly pension can be considerably more advantageous.

‍

Discipline and Security:

Because the money is held in a blocked account until the retirement date, you cannot access it in the meantime. This “disadvantage” has an upside: it creates discipline in your pension accumulation. It prevents you from spending the saved pension capital on something else before your retirement, thus ensuring that there will be a fund for you later. In other words, an annuity forces you to save for later, which can provide extra financial security for the future.

‍

Flexibility in Product Choice:

You can choose yourself how you build up your annuity – through an insurer (traditional annuity insurance), via bank savings (annuity account with a bank or investment institution), or pension investing (annuity account with an investment institution). Both forms have the same tax advantages but each offer their own possibilities (see further on) for investing, saving, duration, and risk. These options make it possible to choose a form that perfectly suits your situation.

‍

Other Advantages:

High returns are possible within certain limits if you opt for investing. Furthermore, an annuity insurance policy can offer options such as a survivor's cover (so that your partner continues to receive payments upon your death) or variation in payments (e.g., higher first, then lower).

You can also, under certain conditions, make up for unused annual allowance from previous years (reserve allowance), allowing you to flexibly make extra deposits if you previously did not contribute the maximum.

‍

N.B.: The exact tax advantages are individually dependent. Always consult a financial advisor if in doubt.

‍

Disadvantages of an Annuity Pension

Besides the advantages, there are also important disadvantages and points of attention associated with an annuity pension:

‍

Money is locked up (inflexibility):

‍The biggest disadvantage is that you have limited access to your money. Your deposit is locked in a blocked account until the agreed retirement date. Withdrawal in the interim is generally not permitted unless you are prepared to pay significant costs and tax. If you still want to access the money earlier, this is considered a surrender. This leads to immediate income tax (at your highest rate) plus a tax penalty of up to 20% of the surrender value. This is called revision interest (revisierente).

‍

Tax rules and restrictions:

The tax advantage comes with a set of rules. For example, you may only contribute up to a certain maximum amount per year with tax deduction (annual allowance), which depends on your income and reserve allowance (see further on). You must also use the money for a pension payment and within the prescribed terms, regardless of unexpected life events.

‍

Return and Cost Risk:

Depending on how you invest in the annuity (saving or investing), you run an investment risk. If you invest the annuity (also known as pension investing), the future capital and thus your pension payment is less certain – disappointing results can affect the pension. On the other hand, if you choose a safe savings account or a fixed payment with an insurer, the return can be relatively low (especially in a low-interest environment) and inflation erodes the purchasing power of your payment. This is a trade-off between risk and return. Less risk means potentially less money, while more risk can yield more money.

‍

Risk of Early Death:

Depending on the annuity product, there is a risk that the full value will not be paid out if you die prematurely. With an annuity insurance policy, the money often goes to the insurer, unless you have included extra insurance. In the case of saving or investing via an annuity, the remaining balance does go to your heirs. They then receive a survivor's annuity. With Vive, you don't have to worry about this because we invest for you. So the full amount goes to your heirs.

‍

Annuity and Wealth Tax (Box 3)

The following important tax advantages and rules apply in 2025:

‍

Annual Allowance (30% rule):

The annual allowance (jaarruimte) is the maximum amount you may deposit into an annuity with tax deduction in one year. In 2025, this is 30% of your premium basis (simply put: your gross income minus the State Pension (AOW) deduction). An absolute maximum also applies. In 2025, the annual allowance is capped at €35,798. This higher percentage (previously approx. 13-17%) offers more scope to build up a tax-advantaged pension, especially for people without a (full) employer pension.

‍

Reserve Allowance (10 years back):

Unused annual allowance from previous years can be caught up via the reserve allowance (reserveringsruimte). Since 2023, you can utilise unused allowance for up to 10 years back. In 2025, the total reserve allowance that you can catch up is capped (absolutely) at €42,108. This is especially beneficial if, for example, you haven't made any deposits for a few years and want to catch up later; it also allows you to deposit a large amount at once with a tax advantage.

‍

Deposits possible up to 5 years after State Pension (AOW) age:

Where previously the last year for premium deposits was the same as reaching the State Pension (AOW) age, this has now been extended. You may now deposit annuity premiums with deduction for up to 5 years AFTER the year in which you reach the AOW age.

‍

Lower Taxation upon Disbursement (Box 1):

The tax advantage lies in deferral: the deposit is now deductible and is taxed later, when there is capital. The annuity payments are considered pension income in the income tax (Box 1). In 2025, the income tax rates in the first bracket are 17.92% up to €40,502, 37.48% in the second bracket (More than €40,502 up to €76,817) and 49.5% above that. This is different from the standard tax brackets. View these on the Belastingdienst (Tax Authority) website.

‍

New rules: employer contribution to annuity

Traditionally, an annuity is something you arrange privately – separate from the employer. In 2024, however, an important decision was made (Tax Authority Knowledge Group position KG:070:2024:1) that expands the possibilities for employers to contribute to their employees' annuities.

‍

What has been decided?

The Tax Authority has confirmed that an employer may directly deposit premiums into the employee's annuity account or policy without the employee losing the tax deduction right. The key is that, for tax purposes, the payment is part of the employee's wages (net salary component). The premiums "burden" the employee and are therefore simply deductible for the employee. It does not matter whether the deposit was withheld from the net salary or whether the employer paid the tax on the contribution via a final levy – both routes are permitted.

‍

Consequences in practice:

Employers who do not offer a classical pension scheme can therefore accommodate their employees by depositing annuity contributions. This new option is also referred to as the "employer annuity". For the employer, it can be a way to offer employees a form of pension accumulation with more freedom (the employee remains the owner of the annuity account).

‍

Pension Products within Annuities

Within the world of annuities, there are different product forms that you can take out to make use of this tax-advantaged old-age provision. In 2025, you can purchase the following products for annuity accumulation or disbursement:

‍

Annuity Insurance (via insurer):

This is the traditional form. You take out a life insurance policy (annuity insurance) with an insurer, to which you deposit a premium (periodically or as a one-off lump sum). The insurer invests or saves this amount, and at the end date, you use it to purchase an annuity payment (often from the same insurer). An advantage of insurance is that you can, for example, receive a lifelong payment. However, the costs are relatively higher, and you lose the capital if you die early (unless survivors are co-insured).

‍

Annuity Account (via bank or investment institution):

You open a special annuity savings account or investment account with a bank or investment institution. On this, you can save (with interest) or invest in funds, within the tax framework. The money in such an account is blocked for an annuity. This form is popular because it often has lower costs and is more transparent. The balance in the account is entirely yours, and upon death, the balance goes to your survivors. There is also extra protection if a provider goes bankrupt (deposit guarantee scheme and custody companies). In the accumulation phase, you can freely switch providers (by transferring value between annuity accounts). A bit like an internet or energy contract.

‍

Net Annuity (supplementary net pension):

This is a special variant for people who no longer have tax allowance. For example, if your income is above the tax-free pension limit or if you do not have a pension shortfall, regular annuity premiums are not deductible. You can then choose to open a net annuity. Here, you deposit net (non-deductible) money into a blocked annuity account. Although you do not receive an income tax advantage upon deposit, a net annuity DOES have other advantages: the capital is, for example, exempt in Box 3. Basically, the normal disbursement rules apply; however, the big difference is net deposit, net payout. You are not taxed extra on the payment upon retirement.

‍

What Vive Offers

Vive is a complete platform for pension and wealth accumulation in the 3rd pillar, tailored to SMEs. With Vive, as an employer, you help your team build up wealth in an accessible way via a personal pension or investment account. Companies that previously refrained from a collective pension scheme due to high costs or complex rules now have the opportunity to offer a good pension. 

‍

How does that work - employers?

As an employer, you sponsor a pension account with Vive. This means that you, as the employer, pay the subscription costs of the pension account and the onboarding. The employer chooses who they offer it to. Additionally, you can choose to contribute a fixed amount or a periodic contribution, starting at any desired level. 

‍

How does that work - employees?

For the employee, this means a pension account in which investments are made with a tax advantage. This easily creates a financial fund for later. They also receive a good tax refund from their deposits every year. 

‍