Should you top up your pension in a pension account or make extra repayments on your mortgage?

Generally speaking, a ‘good’ pension is 70% of the income you were earning just before retirement. This figure is unattainable for many people in the Netherlands for various reasons:

• Your pension plan is based on your average income over your whole working life, which is usually lower than the income you earn towards the end of your career.
• You work for less than 40 years, which means you don’t accrue a full pension.
• You work fewer hours per week than you used to.
• You’ve had different employers and the different pension plans are not aligned with each other.
• You expect to retire earlier than your state pension age.
• You’re divorced and your ex-partner is entitled to part of your pension.

It’s a good idea to regularly review the pension overview provided by your pension fund and carry out a pension check te doen. If your pension isn’t as much as it should be, it might be a smart move to put extra money aside to top it up. The sooner you start, the easier it is to make up for a pension shortfall.

Anyone can pay into a private pension, but this option is particularly relevant to self-employed people. If you’re in employment, you should still regularly check whether you’re accruing enough pension. If you want to top it up, you can do so by saving through an annuity or pension account, for example. On your income tax return, you can claim tax relief on your payments (the money you’ve set aside for your pension) by deducting them from your gross income. You also won’t pay any capital gains tax in Box 3 on the pension capital accrued.

However, this is subject to a number of conditions:

• You can’t withdraw money from your annuity or pension account early
• You can continue to save for up to five years after reaching state pension age.
• When you start to have the accrued capital paid out, this must be done in instalments. These payments will then be subject to income tax in Box 1. These payments may come under a lower tax bracket once you reach state pension age.

The amount you can pay into an annuity or pension account while claiming tax relief on your gross income from work in Box 1 is determined by your ‘annual margin’. You can’t claim tax relief on any payments above this threshold. Suppose you’re employed and your employer pays into a pension plan for you. These payments use up your entire annual margin. That means there is no more annual margin available for you to top up your pension by paying into a pension account. 

If you don’t accrue enough workplace pension, you may be able to improve your financial situation by paying into an annuity or pension account. Be sure to calculate your annual margin to maximise your tax relief. In 2025, the annual margin is capped at €35,798..

Alternatively, you could make additional repayments on your mortgage. This can increase the equity in your home and reduce your monthly expenses.

If you want to significantly reduce your monthly mortgage costs, you’ll need to make a substantial extra repayment. A small repayment won’t make much difference. If your mortgage rate is 4%, you’ll save a gross amount of €40 in interest payments each year for every €1,000 you pay off. And that figure will be even lower after tax. 

Whether it’s wise to pay off more on your mortgage depends on your financial situation and your mortgage terms and conditions. You’ll benefit by paying off more if the return on your savings and investments in Box 3 is lower than the cost of your mortgage in Box 1 (your income from work and home ownership). In this case, we mean the return after tax and the cost after tax deduction.

If you’d like to know more about making your home more sustainable, watch this episode of our Op de bank video series.

If you have a small or no workplace pension, putting money into an annuity or pension account could be a tax-efficient way to save. Alternatively, you could make extra mortgage repayments to lower your monthly payments and increase your home equity. This can help to improve your finances for retirement, but there are no guarantees it will.

There are pros and cons to both saving with an annuity and making extra repayments on your mortgage. Of course, you can also consider combining the two options. If you have any questions or need help, feel free to make an appointment with an adviser for a free orientation meeting. They will be able to discuss your options with you and answer your questions.

• Retiring early or cutting back on work: how do you build up your pension?
• Topping up your pension: what action can you take?