How does an annuity insurance work?
Do you want to be warm up later and enjoy your pension without financial worries? Then an annuity can offer a solution. With an annuity you not only supplement your own pension, you can also secure the income of your surviving relatives if you die.
The Dutch pension system consists of three pillars. First of all you have the AOW benefit from the government. In addition, for many people there is an employer’s pension. That is the second pillar. Finally, there is a third pillar. That is the pension income that you build up yourself. One of the options for supplementing your pension yourself is the annuity.
BacS is completely independent? This gives you a fair overview of the largest selection of savings accounts. This way you can easily find the best matching savings account with the highest interest.
What is annuity?
The annuity has two variants. You can save money through a bank, also called bank savings or bank annuity. But you can also take out an annuity insurance policy with an insurer. In this article we will focus primarily on the insured annuity.
An annuity insurance policy is a type of life insurance policy. With an annuity policy you can build up additional capital for tax purposes after your retirement. Because the government wants to stimulate pension saving, the contribution to an annuity insurance is often deductible from income tax. However, there are also people who use the annuity to secure the income of surviving relatives after death.
Build up and pay annuity
The annuity has two phases: the accrual and the payment. In the build-up phase you have two broad options: you can pay a premium periodically (for example monthly or annually) or you can deposit a larger amount in the annuity insurance in one go. The latter is also referred to as a single premium policy.
By the time you approach retirement age, it is time for the benefit phase. The accrued annuity credit is released, you then have an expiring annuity. This allows you to take out annuity insurance policies with the same insurer. But with the money you can also take out an annuity that you pay out with another insurer or have the payment run through bank savings at a bank.
If you take out a paying annuity, you agree with the bank how you will receive the money. For example, you can agree that you will receive a monthly benefit from the annuity policy from the age of 65.
Annuity and tax
An annuity insurance is a tax-friendly form of pension savings. The deposit can, under certain conditions, be deducted from income tax. You also do not have to pay wealth tax on the accrued credit. When the annuity comes to payment, you do pay income tax on the amount paid. Read more about the capital tax exemption here.
Until 2006 it was fiscally attractive to use an annuity for early retirement. The bridging annuity has not been deductible since 2006. Even if you let the payment of your annuity start before the age of 65, you can no longer deduct premiums.
- A pension gap may arise upon a change of employer. An annuity policy simply continues, because you pay the premium yourself
- You can arrange for the payment after your death to go through for one hundred percent to your dependents
- There is no limit to the payment term
- High costs may be associated with taking out an annuity policy. It is therefore important to make a good comparison.
Take out annuity
Because of the large offer, it is not easy to choose an annuity. The different annuity products have different conditions and regulations. Comparing annuity is therefore very important. There are several things that you can take into account. Like do I want a purchase price or a periodic contribution and do I want a lifelong or temporary benefit? All these questions must be answered before you buy an annuity.
Tip! Would you rather save for your pension on a regular savings product instead of in a bank savings account or annuity insurance? At BacS you can easily compare the interest and conditions of all types of savings accounts. And do you want to keep your money a little longer? Then compare deposit rates here.
Saving yourself (extra) for your pension? Save with a tax benefit and a higher interest rate than on a freely withdrawable savings account. Read how you build up (extra) pension with the flexibility that you want.