3 benefits of personalized pension plans for employees

We should dream more often about our pension... Because what would it be like to spend every winter in Spain and only spend the pleasant spring and summer months in the Netherlands? Or, maybe you want something completely different. Maybe you secretly dream of swimming in your own Uncle Scrooge McDuck money bin? (Haha, just kidding, nobody should want that.) Maybe you don't want anything at all, just relax after all those years of hard work without worrying about your income.

Whatever you want, you need money for your pension. However, most pension plans are collective and not adapted to your age, lifestyle and contributions. The amount of risk you take is determined for you without considering your personal situation. Fortunately, there are also personalized pension plans where the investment strategy is tailored to you. In this blog, we explain what these are and what benefits you can derive from them.

What is a personalized pension?

Personalized pension plans are a modern approach to pension accrual, where your unique profile is central. Unlike traditional, collective pension schemes, which are the same for everyone within an organization, personalized pension plans offer you the freedom to fully tailor your pension accrual to your personal situation. This means you can decide how much you want to contribute monthly, what investment risk you want to take, and how you want your pension pot to grow. This flexibility gives you more control over your immediate and distant financial future, allowing you to set up your pension exactly the way you want it. Whether you dream of spending the winter in Spain, learning something new, or simply enjoying a carefree life after your career, a personalized pension plan makes your pension dreams come true.

How do you build a personalized pension?

The third pillar of the pension system offers you the possibility to supplement and personalize your pension accrual. This contrasts with the first and second pillars, which consist of the state pension (AOW) and the collective pension schemes via the employer, respectively. In the third pillar, you are in charge of your own pension fund. Here you have the freedom to determine how much you want to save and how you want to invest it. 

For example, you can opt for a pension insurance, pension savings account, or an investment account. Because you have control over the structure and content of your pension, the third pillar offers you the opportunity to actively plan your financial future and adapt it to your personal wishes and circumstances. This allows you to ensure that your pension accrual is fully in line with your own goals, such as retiring earlier, realizing big dreams, or simply enjoying a comfortable retirement life. But what are the specific benefits of the personalized pension plan for employees?

1. You get a tax refund and therefore keep more of your hard-earned money

Setting money aside in a bank account basically only costs you money because you have to deal with low interest rates and inflation, and because you have to pay tax on your savings as soon as you exceed the tax-free allowance of €57,000 (€114,000 if you have a fiscal partner). Saving through the third pillar, on the other hand, is fiscally advantageous because the government offers tax benefits to encourage this type of investing and saving. 

The contributions you make to a pension product within the third pillar are deductible from your taxable income up to a certain maximum. This means you pay less income tax in the year you make the contribution, allowing you to save indirectly throughout the year. What are you going to do with that money? Once you get it back, you can go on vacation. OR you can put it back into your pension, where you will receive extra returns and get income tax back the following year. *Ka-chinggggg!* Can you hear that money printer going?

Furthermore, the returns on your deposited amount within this pension scheme are generally not taxed as long as the money remains in the scheme. This means that your assets can grow tax-free, which can lead to a significantly higher pension pot in the long term. When the pension is paid out, tax is levied, but this is done at a lower rate. This is because pensioners pay less tax because specific tax brackets exist for them. In this way, the third pillar offers not only flexibility and control, but also significant tax advantages that contribute to a comfortable retirement.

2. You know exactly what is happening with your pension and you have complete control

One of the most important advantages of personalized pension plans is the transparency and control they offer. In contrast to traditional pension schemes, where employees often have no insight into how their pension is managed or how much they have accumulated, a personalized plan gives you complete transparency. You can see at any time how much money is in your pension pot, how it is invested, and what return you can expect.

In addition, this form of pension accrual offers you the flexibility to make adjustments based on changes in your life. Whether you get a promotion, want to use a bonus wisely, decide to work less, or have unexpected expenses, you can easily adjust your monthly contribution. This means that you can continuously adjust your pension plan to your current financial situation and future goals. This combination of transparency and flexibility not only gives you more control over your pension, but also ensures that you are better prepared for your financial future.

3. You pay less pension costs, leaving you more to save

Traditional pension funds can involve high costs, mainly due to the complex structures and the many parties involved. All those parties have to be paid. Also, collective pension funds are often actively managed funds, which means that advisors actively buy and sell shares, bonds, and ETFs. These advisors also need to be paid. And that is deducted from your return.  

Many personalized pension plans do things differently. They often use modern technology to reduce costs. Automation means fewer people are needed to do things like transactions, rebalancing your portfolio based on the market, and implementing new investment strategies (not everyone does this, but Vive does). 

Personalized plans are less dependent on intermediaries and expensive managers, which generally results in lower costs. This means that more of your money actually goes towards your pension accrual, which ultimately leads to a higher pension. Moreover, the efficient structure of personalized pension plans can contribute to better long-term returns, as less money is lost to costs and inefficiencies.

Personalized pension plans: saving, but more advantageous

Personalized pension accrual offers a clear added value compared to traditional collective schemes and also compared to saving independently through a bank. It not only offers the flexibility and control you need to adjust your pension to your own lifestyle and goals, but it also provides significant tax benefits, allowing you to keep more of your savings. 

Because personalized pension plans often come with lower costs and more efficient management, more of your money remains for the actual accrual of your pension. In essence, personalized pension accrual is a smart way of saving, which not only ensures a carefree old age, but also financially helps you to realize your dream pension. It is a modern, transparent and cost-efficient way to secure your financial future, with more benefits than simply saving in a bank account. Whatever dream you have for your pension, you can achieve it with a personalized pension plan.