Your Dutch pension: understanding Factor A and your annual margin

For many people in the Netherlands, especially the self-employed (zzp’ers), building a sufficient retirement income is a personal responsibility. With one in three people failing to save enough for retirement and the state-provided AOW benefit being modest (around €1,600 per month for a single person or €1,100 with a partner), taking control of your financial future is vital.

Fortunately, the Dutch pension system offers significant tax benefits that encourage private retirement savings. Making full use of these benefits requires understanding your annual margin (jaarruimte) and the often-confusing Factor A.

How tax-advantaged saving works

When saving for retirement in a tax-recognised account (like a lijfrente or pension account), your contributions can be deducted from your taxable income. This deduction can lead to a substantial tax refund, often between 37% and 50%, depending on your income bracket.

This tax-deductible contribution is capped by your annual margin.

How to calculate your annual margin

Your annual margin is determined as a percentage—currently up to 30%—of your previous year’s total income, minus a deduction called the AOW franchise.

• Total income: This includes income from employment, business profits (for zzp’ers and VOFs) and benefits.

• AOW franchise: If your income is below the AOW franchise (around €19,000), your annual margin is zero, which means you cannot claim a tax benefit on your contributions.

Why Factor A matters

The calculation of your annual margin becomes more complex if you had paid employment in the previous year. The tax authority ensures that you do not accumulate a “double pension.” If your employer contributed to your pension during that year, your available annual margin is reduced. This reduction is called Factor A.

Factor A ensures your maximum tax-deductible contribution reflects the total pension accrual you achieved that year. If you were fully self-employed (zzp’er) and had no employer contributions, your Factor A will likely be zero. If you had multiple employers, you must add up all the Factor A amounts listed by each one.

How to find your Factor A

Finding your Factor A is straightforward:

1. Visit Mijnpensioenoverzicht.nl to see which pension funds you have built up.

2. Locate your UPO: each pension fund must send you a Uniform Pension Overview every year.

3. Find your Factor A: it is listed clearly on your UPO.

Even small Factor A amounts can make a noticeable difference to your available annual margin due to a multiplier effect built into the formula.

Making use of unused annual margin: unused annual margin

Unused annual margin from previous years is not lost. It carries over into your unused annual margin (reserveringsruimte). You can use unused annual margin from the past ten years, which can lead to a large potential tax benefit—particularly if you have been self-employed for a long time.

The tax authority uses the oldest unused annual margin first, as it expires after ten years. For example, in 2026, the allowance from 2015 will expire.

The dual tax advantage of pension saving

Using your annual margin (and unused annual margin) for pension contributions offers two key tax benefits:

1. Income tax deduction: Contributions are deductible from taxable income, often resulting in a return of nearly 50% of the deposited amount. While you will pay income tax when you withdraw funds at retirement, your tax rate is usually much lower then—often between 17% and 19%.

2. Box 3 exemption: Money invested in a recognised pension account is exempt from Box 3 wealth tax, meaning you avoid the annual 1–2% levy on assets above the threshold (around €59.000 per person).

Why starting early makes all the difference

Understanding your annual margin and Factor A may seem complicated, but it pays off. Beyond tax benefits, starting early allows your investments to grow through the power of compound interest (the return-on-return effect). The longer you invest, the more dramatic the growth becomes.

For instance, someone investing €250 per month from age 25 could accumulate around €400,000 by age 65. Starting 20 years later at age 45 would result in just €120,000. A ten-year head start could nearly double your total wealth.

Think of Factor A as the balancing weight on your pension scale. It ensures the tax office recognises only your private savings, offsetting what your employer has already contributed. This way, your annual margin is tailored to your personal financial situation.

Learn more:

Discover how the Peaks Pension account helps you make the most of your annual margin while investing smartly for retirement. Remember: Peaks is an execution-only platform and does not give financial advice. Investing carries risks, and past results do not guarantee future returns.