The entrepreneur's retirement provision

Income tax entrepreneurs can currently allocate a (capped) portion of their profits to the old-age reserve. Specifically, this means they can deduct this amount from taxable income and thus enjoy a tax advantage.

The scheme was originally meant to build up a pot as a retirement provision but, of course, that only works if you actually put the amount away and reserve it in a separate account. In about half the cases, this does not happen and only the tax benefit is used. But, at some point, tax payments have to be made on this retirement reserve. This can lead to problems if there are no liquid assets.

Because only half of entrepreneurs use the scheme for its original purpose, the government has decided to abolish the (fiscal) old-age reserve as of 1 January 2023.

Will this mean the possibility of building up a healthy old-age provision for entrepreneurs will be lost?
No, there will be an expansion of options through the Future Pensions Act (WTP).

This law proposes to harmonise the tax treatment of employee pensions (pillar 2) with annuity provisions (pillar 3). This means an employment-neutral pension framework, in other words, as a self-employed person or an employee in salaried employment, there should be equal opportunities to build up -fiscally-facilitated- retirement provision.

Currently, the premium limit of annuity accrual, the so-called annual margin, is capped at 13.3% of a premium base. This will be equated in the WTP to the possible accrual rate of 30% of a base in the 2nd pillar, employee pensions. So all in all, quite a considerable increase with the assumption being that this link between the 2nd and 3rd pillars will remain in the future.

In short, for those entrepreneurs who now actually set aside their old-age reserve, good pension accrual will remain possible. For those entrepreneurs who now only enjoy the tax advantage and do not set anything aside, this is the perfect opportunity to look at how to build up an adequate retirement provision in a financial plan. This way, it is not only enjoying income now but also after retirement.