To show you how ING Pension Investing works, we have prepared a calculation example that demonstrates the immediate tax benefit. In this example, we follow Anna’s situation. Anna (39) works part-time as a freelance graphic designer. The example below is a simplified scenario in which we make a number of assumptions and assume that Anna can fully take advantage of her tax benefit:
Her taxable income fluctuates between €40,000 and €50,000 per year.
She has an annual allowance of €10,000 and wants to build up €5,000 per year for her pension through pension investing.
Anna plans to retire at her expected state pension age (69).
Until retirement (a total of 30 years), Anna contributes €5,000 herself each year.
We assume the current tax rates and that these do not change
The first advantage of pension investing is that your contributions are deductible from income tax. With Anna’s annual contribution of €5,000, she can receive up to €1,850 back each year through her tax return. The exact amount Anna gets back from the Tax Authorities depends on her personal situation. When Anna wants to have this amount paid out to herself, she will still have to pay income tax on it. Over 30 years, the benefit can add up to as much as €55,500 in tax refunds. And if Anna’s income falls into the highest tax bracket, her benefit could increase to as much as €74,250.
| Year | Total Contribution | Accumulated tax refund at a tax bracket of 36.97% | Accumulated tax refund at a tax bracket of 49.5% |
|---|---|---|---|
| 1 | €5,000 | €1,850 | €2,475 |
| 2 | €10,000 | €3,700 | €4,950 |
| ... | ... | ... | ... |
| 30 | €150,000 | €55,500 | €74,250 |
The payouts from your pension investment account are considered taxable income. Anna must pay income tax on these periodic payouts. You can have the accumulated amount paid out through an annuity, provided you meet the tax requirements. Depending on your age and the amount, the payout must run for at least five years. Many people choose a longer term, such as 20 years, to better spread their income. Withdrawing the full amount in one go is fiscally disadvantageous. In that case, you not only pay income tax on the entire amount, but also an additional charge: revision interest. By having the pension capital paid out in installments, you avoid heavy taxation in a single year. This can be more favorable, especially if your income after reaching the state pension age is lower. You will no longer pay state pension contributions, which means the rate in the lowest tax bracket is lower. If your total income still falls into a higher tax bracket, the tax benefit may be limited. On the Tax Authority’s website (Dutch only), you can find the most up-to-date tax rates that apply.
"}},{"componentType":"sectionTitle","title":"Good to know"},{"componentType":"paragraph","richBody":{"value":"The above results provide an indication of what you can achieve by investing for your pension and are based on current tax rules. These may change in the future. The results are not guarantees, but expectations. Keep in mind that investing involves risks and that you may lose (part of) your contributions.
Investing involves risks and costs. The value of your investments can fluctuate. Past performance is no guarantee of future results. Make sure you are well informed before making investment decisions.
*For informational purposes, we will use the name Pension Investing. The actual product name is Pensioenbeleggen. This translation is intended for the customer’s convenience only. In the event of any inconsistency between the English translation and the original Dutch version, the original Dutch version shall prevail.
"}},{"componentType":"sectionTitle","title":"Frequently asked questions"},{"componentType":"accordion","accordionList":[{"title":"What is annual allowance and reserve allowance?","richBody":{"value":"Annual allowance and reserve allowance are important for pension investing because they help you build additional pension in a tax-efficient way. With the annual allowance, you can contribute an amount each year and deduct it from your taxable income.
Annual allowance arises when, in a given year, you have built up less pension than the maximum allowed. For every contribution you make, you can receive part of it back through your income tax return the following year.
With reserve allowance, you can still use the unused annual allowance from previous years. This way, you can invest more for your pension and potentially benefit from tax advantages.
Please note: there is a maximum contribution for the reserve allowance each year. You cannot simply add up all your annual allowances without limit.
"}},{"title":"How do you calculate annual allowance?","richBody":{"value":"Go to the Tax Authority’s website (Dutch only) and use the calculation tool for annual allowance. You will need your annual statement and your Uniform Pension Overview (UPO – log in with your pension provider for this). The tool guides you step by step to calculate your annual allowance.
"}}]}]}}}