Annual space, that, next to Mariah Carey, Christmas Eve and year-end sales, is probably the most heard word of November and December. And not without reason: we are massively under-building our pensions, which means that after age 67, we have an income drawdown of “gotcha there. And to top this ugly flare-up, women have it even a little worse than men. We accrue 40% less pension than men. Work to be done! Understanding and utilizing the annual margin is an important aspect of the entire pension picture.
Annual space calculation, tell?!
If you accrue pension through your employer, you will receive a Uniform Pension Statement (UPO) every year. This statement shows how much pension you accrue through your employer. Often, in addition to the pension you accrue through your employer, you may set aside a little extra for later. Exactly how much this is depends on your – here it comes! – annual space. The annual margin is based on your income and the pension you accrue through your employer. If you have annual allowance, you can deposit this amount in an escrow retirement account. Part of the deposit you then get back through your income tax return.
Catch up
Have you accrued less pension in recent years than you should be allowed to accrue by the Internal Revenue Service? Then you probably have unused annual space. But: now comes the finer part, you are allowed by the IRS to use your unused annual allowance extra up to 10 years back. This is called the reserve room. The reserve allowance, like the annual allowance, is tax deductible. Rules do apply to the use of the reserve space, especially with regard to the maximum amount you may deposit.
Calculating your reserve space and annual margin? Do so with, for example this tool from Brand New Day!
I am my own boss, now what?
As a self-employed person, it’s extra careful! This is because you do not accrue a pension through your employer (pillar 2). All the more important that you take good care of your granny self. As an independent contractor, you can take advantage of the annual allowance. You used to have FOR, but that was abolished by 2023. The tax-deferred retirement reserve (FOR) scheme was specifically for entrepreneurs. They could add part of their profits to the FOR. As of 2023, the scheme was abolished.
Almost everyone in the Netherlands has a pension shortfall, even if you accrue pension through your employer. So whether you work in salaried employment or for yourself: chances are we will need to supplement our pensions. But where do you start?
It starts with calculating your annual margin….
Calculating annual margin: a step-by-step plan
Calculating your annual margin – that is, the extra amount you can put into pillar 3 to supplement your pension – is a snap. You have to put in the effort! We help you, with these the right steps to take. We’re going to look at what you’re allowed to invest extra in retirement in 2023, based on your income and annual margin in 2022. It always knocks back a year.
Pillar 3, say what! Read how the pension system in the Netherlands is structured in 3 pillars.
Step 1: Determine your total gross income
Find the 2022 total gross income. If you are employed, look at your 2022 income tax return or annual statement(s). As a Zzp’er, ask your accountant for the gross profit plus any additional taxes on your 2022 business car.
Step 2: Employer’s pension: yes/no?
Find out if and where you accrued collective pension as an employee in 2022? Ask your employer or look at Mijnpensioenoverzicht.nl. Do you build up a pension through your employer? Next is step 3. If you are self-employed and do not accrue a pension through an employer, go to step 4.
Step 3: Employer Pension Factor A.
Look for your Uniform Pension Statement (UPO) (download it here) with it for your Factor A. On your UPO, look for the 2022 Factor A. Did you have multiple employers and therefore multiple group pension plans in 2022? Then look up all the UPOs and add up the Factor A’s.
Note! The Factor A is an indication of pension growth in the second pillar and in reflected on the Uniform Pension Statement (UPO).
Step 4: Check what you’ve already done.
Check if you have already deposited money in a special retirement account this year. If so, you must enter those amounts in the annual allowance tool. The amounts are deducted 1 to 1 from your 2022 annual allowance.
Step 5: Calculate your 2022 annual margin by entering the required information in the annual margin tool.
Do you have extra annual space? Then you can deposit this into a special retirement investment account. Remember to pass this amount on to your income tax next year!
Annual space tool
To give you a hand with the final step, you can use Brand New Day’s annual margin tool to quickly calculate what you can put in extra this year to supplement your pension. That amount is then tax-deductible, so make sure you properly report this to your accountant next March or if you do your IB yourself: don’t forget to fill it out. Bright Pension also has a handy tool for calculating your annual and reserve margin. Check it out here.
