This article is written from the perspective of an employee in The Netherlands. In this case, a person can usually have three types of pension funds:

  • A mandatory pension fund managed by the government: SVB.
  • An optional pension fund made up of employee contributions and employer contributions. It depends on the company policy and the collective employment conditions (CAO) of the sector you are working in.
  • A self-managed pension fund made up of personal contributions.

My objective is to explain this last type of pension fund: self-managed pension fund.

Self-managed Pensions Funds

To manage our pension fund, we need to open an account with an organization approved by the Dutch authorities. But, unfortunately, we cannot use any broker, such as Trading212 or others.

The most popular choices I could find are DEGIRO (https://www.degiro.nl/pensioenrekening.html) and Brand New Day (https://new.brandnewday.nl/).

Given the limited choices of organizations to manage our money, you might ask why to invest in a pension fund instead of investing or trading in your preferred platform. The answer relies on the tax break we obtain when investing in a pension fund account instead of a regular broker account.

Both are very similar. DEGIRO allows us to take control and invest for your supplementary pension in stocks, bonds, investment funds, ETFs (trackers) of your choice, while Brand New Day is limited to some bonds and investment funds.

Due to the flexibility of DEGIRO and my familiarity with their services, I will proceed with that broker, although everything discussed below is also applicable to Brand New Day.

Opening an account in DEGIRO

Even if you are a client of DEGIRO, you cannot invest towards your taxed advantaged pension fund using the same account. Luckily DEGIRO allows you to create several accounts per person, which means that you can open an account with your existing email, a new username and go through verifying your identity in the platform.

Adding funds to DEGIRO

After opening an account in DEGIRO, the broker will provide you with an account number to add funds to your new account. The amount of funds tax-free to contribute is not infinite but limited by your annual margin of the current year and past years.

Calculating your annual margin

To calculate the annual margin, we can go to Belastingdienst and fill a provisionary tax declaration for the current year. At the moment of writing this article, you can fill the provisionary assessment for 2021.

You will need your previous tax declarations to check your total yearly income (the total from work income, extra payments, bonus, etc.). In addition, if you and your employer contribute to a pension fund arranged by your employer, you will need the A-factor that can be checked in the unified pension overview (UPO) of the company that managed the pension on behalf of your employer.

The UPO document with the A-factor is usually generated in September-October and obtained on the insurance company’s webpage with your DigiD. If this is the first time you use the annual margin, you will probably have many unused reservation margins from previous years. Therefore, you can increase the margin using the reservation space to add up to the last seven years. In simple terms, that means that if you have not used the annual margin (or at least not wholly) of an earlier year, you can increase the annual margin in the current year.

You can use the reservation margin of the previous years to complement the current year’s margin, adding a maximum between 7K to 8K

In summary: To calculate the annual margin, you need to collect all previous tax declarations and unified pension overviews of at least seven years. Afterward, you will calculate the annual margin using the values contained in the previously mentioned documents using a provisionary tax assessment for the current year in the webpage of Belastingdienst (https://www.belastingdienst.nl/)

Collecting the Unified Pension Overview (UPO) documents

In the first place, you can consult all pension funds under your name (in The Netherlands) using the “My Pension Overview”. Then, after logging with your DigiD, you should be able to see all companies with a pension fund under your name, as well as the government pension (SVB).

The webpage gives you an overview of what you can expect in the future regarding monthly payments with the current pension, but our goal is to list all companies that manage a pension under your name.

If you expand in each pension entry of the web page, you can see more information and a link to log in on the pension provider. Doing this in each pension provider, you should be able to go to every pension provider’s documents (or past correspondence) and download your UPO documents.

Collecting all past tax declarations

You can consult your past declaration by logging in on Belastingdienst (https://www.belastingdienst.nl/) and going to the section Belastingaangifte.

Glueing all together

Once you have all documents, I recommend filling a table containing the relevant data: Year, Total income, and A-Factor.

Pension companies produce the UPO document in September-October. So, for example, if you are trying to calculate the annual margin for 2021 in May, you will need the UPO of 2020, which is not generated until September.

In that case, you can estimate the A-Factor by copying your data from 2019 or applying proportionality if your situation has changed. You can also calculate the A-Factor yourself using the instructions of this webpage (https://www.iexgeld.nl/Artikel/150656/Dit-is-de-Factor-A-en-zo-bereken-je-m.aspx).

I will advise against spending time calculating the A-Factor and instead use an approximation. That way, you can start making monthly contributions based on the estimation. You have several months (from October until December) to correct the contributions to match the annual space calculated with the correct figures once you received the UPO.

Remember that the tax authorities do not care about your monthly contributions but only the annual amount. Therefore, if your approximation of the A-Factor is conservative, and since you still have three months to correct the total annual contribution to your pension fund, the risk of overshooting and losing the tax advantages is very low.

Making a provisionary tax assessment

First, we enter into “Mijn Belastingdienst” (https://mijn.belastingdienst.nl) and log in with the DigiD. Next, we should go to the Inkomstenbelasting section. Last, we can find the option (Belastingjaar 2021) to fill a provisionary tax return for the current year (in this case, 2021).

To speed up the process, we can allow Belastingdienst to copy all relevant data from a previous declaration. Remember to update the data with your estimation for your current income (inkomsten) and update any fields that differ from the last year to your current year.

To calculate our annual space for the pension, we can go to “Expenses” (Uitgaven) and select the first option “, Expenses for annuities, only with a pension deficit” (Uitgaven voor lijfrente, alleen bij een pensioentekort).

Clicking next, Belastingdienst will ask for the entity you used to save your pension fund and the amount you used. For this effect, I enter a number relatively high (50.000 EUR) as I am not going to submit the declaration, and I intend to calculate the maximum amount annuity deduction for this year.

All the data collected previously (Total income and A-Factor) should be relatively easy to fill all the data and obtain the maximum amount of money you can contribute (tax-free) to your pension.

The calculation obtained does not mean that you should invest all that money in your pension fund, but rather consider the tax brackets that apply to your income and, with this calculation, decide how much makes sense to you to contribute to your pension.

Please be aware that this is not official advice but rather the views and opinions of a financial aficionado