If you are an employee and your employer has arranged for a pension when you have reached the age of 68 years old, you could make an extra contribution to this pension. Is that wise?
We would like to stress that we are no pension experts, so our remarks about pensions you should read as our opinion about pensions.
Pension A factor (A waarde)
Pension contributions made are tax deductible, however, the deduction is limited. The limitation depends on your income of the previous year and the A-factor. The A Factor stands for the value your pension right has increased during that year. This A factor statement is issued by the pension insurance company of your employer every year to you.
This A factor limits your possibilities to make a tax deductible contribution to your pension insurance. If you would like to make a larger deposit exceeding the maximum annual amount referred to as jaarruimte, you can choose to use the unused jaarruimte of the previous years. This is referred to as reserveringsruimte (additional jaarruimte).
Reserveringsruimte
The annual jaarruimte not used during the past 8 years you can calculate and make use of this unused amount now. If all is well the reserveringsruimte amount could show in your personal income tax return. Please note that for each year you need to have taken into account the A factor limiting the deduction amount. If there is an amount left over you can use to make a tax deductible deposit, you can exercise this opportunity.
Extra payment or not
Is the extra pension payment a payment or a donation? You are entitled to make use of your pension when you have reached the age of 68 years old. We can easily assume that this age will increase over the years to over 70 years old. Will you ever make use of the pension, which makes the extra payment a donation to the insurance company which will be highly appreciated by the insurance company.
An alternative for making a pension deposit is make an extra repayment on your mortgage, if applicable. You see an immediate effect in lower monthly mortgage interest to be paid. It will not buy you bread when you have reached the old age pension, but it does make your working life more enjoyable.
