Many young investors and working people wonder how best to save for later: do you choose pension investing or pension saving? Both are ways to build up an additional pension yourself with tax advantages, but there are important differences in risk and potential return. In this blog, we explain in a light and easy-to-understand way what each option involves and help you make the right choice. We compare them by definition, similarities, differences, risks, potential returns, pros and cons. Finally, we share some practical tips.
What is pension investing?
Pension investing is, simply put, investing for your retirement through a special blocked account. You contribute money to this account either regularly or as a lump sum, and that money is invested (often in index funds or multi-asset funds) to grow over the long term. You can only withdraw the money once you reach retirement age (the state pension age) — withdrawing earlier is generally not possible without tax consequences. During the accumulation phase, you benefit from tax advantages: contributions are tax-deductible (within your annual allowance) and you do not pay wealth tax on the assets you build up. Pension investing can therefore be an attractive way to top up your retirement pot, especially for younger people with a long investment horizon who are willing to take some risk in exchange for potentially higher returns.
What is pension saving?
Pension saving (also known as bank saving for retirement) is a way of saving for later through a dedicated pension savings account. Instead of investing, your money is placed in a savings account, often with a fixed or variable interest rate. This money is also locked in until your retirement date (you typically cannot withdraw it until you reach the state pension age). As with pension investing, you receive a tax advantage: deposits are tax-deductible (within your annual allowance) and the balance is exempt from wealth tax. Pension saving is seen as a relatively safe option for building wealth for later, because you are not exposed to stock market fluctuations. You more or less know how much you will build up, depending on the interest rate, and you take relatively little risk compared with investing. The downside is that the expected return is usually lower than investing, especially in periods of low interest rates.
Similarities
Both options are similar in structure and serve the same purpose: you build an additional pension pot yourself (the so-called third pillar of the Dutch pension system). Key similarities include:
- Tax advantage: Both pension saving and pension investing take place via a blocked annuity account, meaning your contributions (within your annual/carry-forward allowance) are tax-deductible and the assets are exempt from wealth tax. This can save you hundreds to thousands of euros compared with saving outside this arrangement.
- Blocked pension account: In both cases your money is locked in until (at least) the state pension age. You cannot withdraw the balance early without a tax penalty and repayment of previously received tax benefits. This means you must be able to set this money aside until retirement.
- Additional pension: Both products are intended to supplement any pension shortfall. They are relevant if you have a pension gap (for example, if you are self-employed or do not build up a full pension through your employer). If you have no pension shortfall (and therefore no annual allowance), you cannot make much — if any — use of these options.
- Payout phase: Ultimately, when you retire, the accumulated capital must be used to purchase an annuity payout (a regular payment to supplement the state pension and any employer pension). This applies to capital built up via both pension saving and pension investing; the tax rules are the same.
Differences
Despite the similarities, there are clear differences between pension investing and pension saving. The main ones relate to risk and return:
- Risk & guarantee: With pension investing, you take investment risk. The value of your investments can fluctuate; there is no guarantee your contributions will grow — you may even suffer (temporary) losses. Pension saving, by contrast, offers much more certainty: you receive a known or variable interest rate on your savings, and your original deposit remains intact. You therefore have a clearer sense of where you will end up, aside from interest-rate changes. There is deposit protection: savings are covered (per bank) by the deposit guarantee scheme up to €100,000, so even if a bank fails your balance is protected up to that amount. Investments are not covered by deposit protection, although investor assets are often legally segregated if a broker or bank were to go bankrupt.
- (Expected) return: Historically, the expected return from pension investing is higher than from pension saving. Investing in a globally diversified portfolio can deliver an average return of roughly 4–8% per year over the long term (depending on your risk profile), while saving has often yielded 0–2% per year. With pension saving, your return depends on the savings interest rate, which is generally lower than long-term market returns. In short: investing = potential for higher returns, saving = certainty of lower (but stable) returns.
- Costs: Pension saving is often straightforward on costs: many providers charge a one-off opening fee (e.g. ~€40) and then no ongoing fees for the savings account. With pension investing, you typically pay annual costs (service fees and fund costs) on your investments. These costs reduce your net return. Note: fees vary by provider (e.g. Brand New Day ~0.5% per year, Centraal Beheer ~0.3% per year, BrightPensioen works with a fixed membership fee, etc.). Comparing fees can be worthwhile.
- Flexibility in approach: With pension saving you can often choose between a variable interest rate (which can change) or fixed-term deposits with a fixed rate for a set number of years. You also decide how much and when to contribute (within the tax allowance). With pension investing you choose an investment profile (from defensive to adventurous), or the provider adjusts it automatically via a lifecycle approach (more adventurous when you are younger, more defensive as you approach retirement). This gives you more investment choices. Some people even combine both: saving part and investing part to spread risk.
Risks
No financial product is entirely risk-free. These are the risks to consider with pension investing and pension saving:
- Risk with pension investing: Investing involves the familiar market and price risk. The value of your pension investments can fluctuate significantly in the short term. A market crash shortly before retirement could temporarily reduce your pot. In 2022, for example, more adventurous pension portfolios lost around 15% in value. Fortunately, younger investors often have time to recover from such dips, but it remains a risk. Over longer periods, markets have historically recovered — as shown by strong gains in 2019, 2020 and 2021 — but there is no guarantee. You need to be comfortable with your balance falling on paper. Also: investing badly (e.g. putting everything into a single share) carries huge risk; that is why pension providers invest in diversified index funds. Finally, investing offers inflation protection over the long term, as equities and other assets tend to move with inflation — but with volatility along the way.
- Risk with pension saving: Pension saving has little investment risk — you earn interest. However, there are other risks. A key one is inflation/interest-rate risk: if the savings interest rate is lower than inflation, your money loses purchasing power. For years, interest rates were close to 0% while prices rose, meaning your real wealth did not grow. Rates are higher now, but they could fall again in the future or rise more slowly than inflation. With a variable rate, the provider can change it at any time. With a long fixed deposit, you risk market rates rising while you are locked into a lower rate (and vice versa — which can also work in your favour). Another key point is that your money is locked in: if you want to access it early, you face a substantial tax penalty and it is taxed as income. Finally, savings are guaranteed up to €100,000 per bank, but if you hold more than that with a single bank, the amount above €100,000 is not covered in the unlikely event of a bank failure — although you can spread balances across multiple banks if needed.
Potential returns
So what can you realistically expect in terms of returns? First, we look at current interest rates for pension savings accounts, and then at historical investment returns for pension investing.
- Interest rates for pension saving (Netherlands): Due to rising rates in 2023–2024, pension saving once again offers a reasonable interest rate. Currently (early 2025), online banks and insurers offer approximately the following: a variable rate of around 1.8–2.0% per year, and fixed deposit rates of around 2.3% to 2.8% depending on the term. For example, Knab Pensioensparen currently offers 1.90% variable and up to 2.35% fixed. Brand New Day offers 1.80% variable interest (as at 24-02-2025) and, for example, 2.40% fixed for 1–3 years, rising to 2.50% fixed for deposits of 10+ years. Major banks also participate: Rabobank’s Rabo ToekomstSparen offers longer-term rates of 2.65%–2.80% per year. These rates can of course change with the market and are still relatively low historically (but considerably better than the ~0% of a few years ago).
- Average returns from pension investing: Returns from pension investing depend on your investment profile (how much is allocated to equities versus bonds). Over the past ~5–10 years, many pension investors have achieved strong results — but with ups and downs. Some indicative figures: at Brand New Day, which invests in index funds as standard, a very adventurous profile delivered an average of about 8.6% per year, adventurous ~6.8%, balanced ~5.3%, defensive ~3.7%, and very defensive ~2.1% per year (measured over 2010 to 2024). This illustrates the impact of a higher equity allocation (= higher average returns, but bigger swings). By way of illustration: 2022 was a poor year at roughly –15% for most profiles, while 2023 saw a strong recovery (+11% for balanced, and even +17–18% for adventurous). A provider such as BrightPensioen (with a balanced profile fund) achieved an average of ~6% per year over the past 9 years. Large pension funds (such as ABP) have averaged around ~6% per year over recent decades.
Conclusion: Over the long term, investments can deliver around 4–8% per year depending on your risk level, but there is no guarantee — you may also experience a few weak or negative years. Saving currently offers around ~2% per year with certainty. This difference in potential return is exactly the trade-off between pension investing and pension saving.
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Image: Illustration of a growing pension pot through investing. Over the long term, investing can deliver higher returns than saving, albeit with greater volatility.
Pros and cons
Finally, here are the pros and cons of both options. What are the main advantages and disadvantages of pension investing versus pension saving?
Pension investing – Pros:
- Higher expected return: As noted, the potential for higher long-term returns is greater. Historically, over periods of 10+ years, investments have almost always outperformed saving. Your pot can therefore grow faster.
- Protection against low interest rates/inflation: You are not dependent on bank interest rates. With inflation and economic growth, corporate profits and dividends often increase, which can be reflected in share prices. This can help your pension pot maintain its purchasing power over time.
- Tax advantages: As with pension saving, you can deduct contributions and you do not pay wealth tax during the build-up phase. This advantage is the same for both, but it matters even more if you achieve strong returns (because growth is then tax-free).
- Flexibility in investing: You can usually choose your risk profile. A more adventurous profile offers greater growth potential, while a defensive profile offers more stability — you can tailor it to your personal risk tolerance. Some providers (such as BrightPensioen) invest sustainably, so you can also choose an approach that suits you.
- A long horizon works in your favour: Investing tends to work best over long periods thanks to compound returns. If you start young, your contributions can grow exponentially over time. Time is your friend when investing.
Pension investing – Cons:
- Investment risk: The biggest drawback: there are no guarantees. You must be able to live with uncertainty and the possibility of disappointment. Not everyone sleeps well knowing their pension pot can fluctuate with the markets.
- Less certainty about the final amount: Because outcomes vary, you do not know exactly how much you will end up with. You can use a pension planner with conservative assumptions, but it remains a projection.
- Costs and complexity: Investing often involves slightly higher costs (service fees, fund costs). It also requires some understanding of investing — even if a manager does the work for you, you still need basic knowledge to stay the course during downturns. In effect, you become the manager of your own pension pot.
- Money is locked in: As with pension saving, your money is locked in until retirement age (so this is not unique to investing, but it is important to keep in mind).
Pension saving – Pros:
- Safety and certainty: The main advantage. Your contributions are not exposed to stock market swings. You receive a fixed or variable return in the form of interest, and your savings balance cannot fall due to market movements. As a result, you can be fairly confident about how much you will have at the end date (especially with fixed deposits).
- No investment knowledge needed: Anyone can open a pension savings account; you do not need to be an expert. It is clear and easy to understand — essentially a savings account with a lock on it. That makes it accessible.
- Deposit protection: As mentioned, a pension savings account at a bank is covered by the deposit guarantee scheme up to €100,000. In practice, you take almost no risk of losing your nominal contribution. That provides peace of mind.
- Also tax-efficient: You receive the same tax advantage as with pension investing (deductible contributions, no wealth tax). So you do not lose out on that front.
- Suitable for a short horizon: If, for example, you will retire within 5–10 years (or are already retired and want to use carry-forward allowance), pension saving can be ideal. You avoid the risk of a market dip shortly before pension payouts begin.
Pension saving – Cons:
- Lower (potential) return: In exchange for certainty, you give up potential gains. Savings interest rates have historically been much lower than market returns, especially after inflation.
- In periods of low interest rates, your money barely grows. You therefore need to contribute more to build the same capital as someone who invests (or accept a smaller pension pot).
- Inflation risk: As discussed, high inflation can erode the real value of savings, especially if interest rates are (just) below inflation. You avoid investment risk, but you may still see your purchasing power decline.
- No unexpected upside: Where an investor might benefit from a few excellent market years and end up with a much higher balance than expected, saving will not deliver such windfalls. Returns are more or less capped by the interest rate.
- Money is locked in: Here too, you cannot access your money easily. This is less a drawback of saving itself (it is simply the tax condition), but it is worth stating — both routes have limited flexibility in the meantime.
Conclusion and practical tips
Which should you choose? Ultimately, the choice between pension investing and pension saving depends on your personal situation, preferences and financial goals. Are you young, do you have decades until retirement, and are you comfortable taking some risk? Then pension investing may be attractive because of the higher expected long-term returns. Do you have a shorter horizon until retirement, or do you simply sleep better with certainty? Then pension saving is likely to be more suitable, as you are less likely to face surprises and you know where you stand.
In practice, many people combine the best of both worlds: for example, investing for the medium term while locking in part of their pot in pension deposits for extra certainty. That way you spread both risk and return. Remember: there is no right or wrong — what matters is what fits your situation best.
Practical tips to get the most out of your pension build-up:
- Use your annual allowance: Check each year how much annual allowance (and carry-forward allowance) you have — this is the amount you can contribute to a pension product with tax benefits. You can calculate this via the Dutch tax authority or tools provided by banks. Use as much of that allowance as you can, because it can generate a tax refund of 37% up to as much as 49.5% of your contribution.
- Compare interest rates and fees by provider: Differences between providers can be significant. Compare banks (Knab, Rabobank, ABN, etc.) and specialist providers (Brand New Day, BrightPensioen, Centraal Beheer) for both pension saving and pension investing. Pay attention to the interest rate offered (for saving) and the fees and investment options (for investing). A small difference in fees or rates can make a substantial difference to the final amount over decades. Much of this information is publicly available: interest tables and average returns are typically published on providers’ websites.
- Define your risk profile and time horizon: Ask yourself honestly how much risk you can comfortably tolerate. Could you handle a 20% fall without panicking? Or would you rather avoid that? Base your choice on the answer. Younger people can usually take more risk (more equities) because they have a longer horizon to ride out fluctuations. As you get older, you can shift to a more defensive profile or move (partly) into pension saving to lock in gains.
- Start in time (as early as possible): Time matters hugely because of compound growth. Starting early with a relatively small amount can yield more later in life than starting late with a large amount. You also have more time to weather weaker investment years. Starting during your studies or your first job (even with €50 per month) can pay off.
- Stay patient if you invest: If you choose pension investing, take a long-term view. Do not check your balance daily; ups and downs are normal. Consider contributing regularly (spreading investments over time) so you do not invest everything at a peak or trough. And do not abandon your plan when markets get choppy. Pension investing is meant to be “boring” — let it run on autopilot and focus on the long view.
- Consider advice or tools: Still unsure? Use online pension comparison sites, blogs (like this one 😃) and calculation tools. Many providers offer free advice calls or webinars about pension planning. In some cases, an independent financial adviser can help you decide, especially if your situation is more complex.
Conclusion: Both options — pension investing and pension saving — can be excellent ways to build a financial buffer for later life. One is not necessarily “better” than the other; it depends on what suits you. With the information and tips in this blog, you can make a well-informed choice. In any case, start early with your pension planning, make the most of your tax advantages and choose an approach you feel comfortable with.
