How do I arrange my pension as a self-employed person?

As a self-employed person, you are responsible for your own pension. You do not build up anything automatically unless you actively choose to do so. The main options are: saving via annuity insurance, bank savings, or investing yourself. You can also take tax advantage with the retirement reserve (FOR) and additional private solutions. In this article, you will discover what choices you have and how to start smart, without unnecessary costs.

Why pension accrual is important for the self-employed

Being self-employed gives you freedom, but also responsibility. Employees automatically build up a pension through their employer. As a self-employed person, you have to arrange it yourself. If you don't, you will soon fall back on just the AOW. That means a basic income of about €1,400 net per month (for singles), which for most is not enough to live comfortably.

A good pension ensures that you can continue to live at the level you are used to, even if you stop working.

How do you build up a pension as a self-employed person?

You have several ways to build up assets for later. Which method suits you best depends on your income, your appetite for risk and how close you are to retirement age. The three main ones are:

1. Saving or investing within a pension product. Think of an annuity insurance or bank savings account. The money you put in there is usually tax deductible.
2. Free savings or investments. You can also save or invest yourself through a regular account. This is more flexible, but with no tax advantage. Read more about taxes for self-employed people here.
3. Investing in assets is also an option. For example, in real estate, your business or other investments that will generate income later.

What is annuity insurance?

Annuity insurance is a classic retirement solution. You periodically deposit money in an insurance policy with a bank or insurer, and that amount is invested or saved. At retirement date, you then receive a monthly payment.

The advantages are that your deposits are tax deductible within your annual allowance. You only pay tax when you receive payments, often at a lower rate. Last but not least, you can choose between fixed or variable returns.

Drawbacks? Your money is tied up until your retirement date and the costs and conditions vary greatly between providers.

An annuity is especially suitable if you want security and do not plan to use the money in the interim.

What is bank savings?

Bank savings is similar to annuity insurance, but is more transparent and often cheaper. You deposit money in an escrow bank account and may only withdraw it once you retire.

Advantages? Low costs and clear conditions. You decide whether to save or invest and benefit from tax advantages. The deposit is deductible, and the distribution is not taxed until later.

It also has a downside. It is less flexible and you cannot withdraw the money just like that. Returns also depend on savings rates or investment results. Bank savings are popular among self-employed people who seek security without an insurance construction.

What is the retirement reserve (FOR)?

For years, the tax-deferred retirement reserve (FOR) was a popular way to build up a pension through taxation. You could annually reserve part of your profits as retirement income, thus paying less tax.

Since 2023, you can no longer add new amounts to the FOR. What you built up previously does remain, but it must eventually be converted into an annuity or paid out when you wind up your business.

So the FOR is disappearing. For new accrual, annuities and bank savings are now the best alternatives.

How much should you save for a good pension?

A common mistake is thinking that "a few thousand euros a year" will get you by later. In reality, pension accrual is a matter of long-windedness and consistency.

Do you want to keep about 70% of your current income? Then you need to set aside around 10% to 15% of your gross income every year.

If you earn €50,000 a year, you should ideally set aside €5,000 to €7,500 a year.
If you start young, you will benefit from return on return, this is the big advantage of starting early. Even small amounts help. €200 a month from age 30 can grow to more than €150,000 at age 67, depending on returns.

What is the difference between bank savings and self-investment?

With self investing, you have maximum freedom because you decide everything yourself. Where, how much and when you invest. The downside is that there is no tax deduction, and you have to discipline yourself not to touch the money.

Bank savings are more fiscally attractive and safer. The bank supervises, and the money is legally blocked until your retirement.

Many self-employed people combine both: part tax-deferred via bank savings or annuities and part free investment or savings for extra flexibility.

What tax advantages do you have as a self-employed person when building up a pension?

The government encourages self-employed people to save for their own old age. That means you get tax benefits through certain schemes, as long as you actually use the money for retirement. The main ones are annual margin, reserve margin, tax deductibility and exemption in box 1.

The annual margin is the amount you can deposit annually in an annuity or bank savings account and deduct from your taxable income. How much this is depends on your profit and whether you already build up pension somewhere else. Have you not used your full annual margin in recent years? Then you can still make up for it with the reserve margin. Useful if you temporarily make more profit or want to make an additional deposit later.

Find out more about taxes for self-employed people.

How interesting is tax deductibility?

Tax deductibility is also an interesting scheme. Your deposit reduces your taxable earnings. As a result, you pay less income tax now, and only tax upon distribution later, usually at a lower rate.

Box 1 exemption is also a scheme to keep an eye on. Because the money is in an escrow product (bank savings or annuity), it does not count as assets in Box 3. That saves capital gains tax. So the taxman will help you save, as long as you take the goal of building up a pension seriously.

How do you start pension accrual as a self-employed person?

The most important thing is just to start. You don't have to have the perfect strategy right away. Regularity and discipline are much more important. Start by mapping out your current situation. When can you retire under the state pension scheme? What do you earn now and how much do you want to be able to spend per month later? These questions give direction.

Then you calculate your annual allowance. That sounds more complicated than it is. The Tax Office has a handy calculation tool, or your accountant can figure it out for you. Once you know how much headroom you have, choose a pension product. Compare providers of annuities or bank savings and pay attention to cost, return and flexibility. Cheap is not always good, but expensive is not necessarily better either.
*** Translated with www.DeepL.com/Translator (free version) ***

The real secret?

Automate your deposits. Make it a fixed monthly transfer, just like your rent or insurance. That way, you build wealth imperceptibly without having to think about it every time. Evaluate annually whether you are still on track.

If necessary, also put a small portion in a free investment account. This gives extra flexibility if opportunities or emergencies arise. Not everything needs to be tied up until age 68.

Common mistakes in pension accrual

Self-employed people often make the same thinking mistakes when it comes to retirement. The biggest one? Starting too late. Time is your best friend when building up a pension. The earlier you start, the more return you build up. Really, every month counts.

Another common mistake is not making a clear distinction between private and business savings. Your pension pot should be separate from your business account. If everything gets mixed up, your pension disappears unnoticed in your cash flow and you lose track.

Some choose to invest freely without a plan or tax benefit. This sounds flexible, but without a clear strategy or discipline, it is often a procrastination. Before you know it, you are years down the road without really building anything.

Also risky: relying entirely on selling your business or home as a pension. The value can fall, and liquidating it is not always easy. Spread your risks and make sure you build wealth in multiple ways.

Finally, keep making regular adjustments. Your income, family situation and tax rules change. What works now may not be as smart five years from now. By revising from time to time, you keep a grip on your future.