Retirement investing vs. retirement savings: Which suits you?

Many young investors and working people wonder how best to save for later: do you choose retirement investing or retirement savings? Both are ways to build your own supplementary pension with tax advantages, but there are important differences in risk and return. In this blog, we explain in a light-hearted and understandable way what both entail and help you make the right choice. We compare them on definition, similarities, differences, risks, potential returns, advantages and disadvantages. Finally, we give some practical tips.

What is retirement investing?

Retirement investing, simply put, is investing for your retirement in a special escrow account. You deposit money into this account periodically or once and that money is invested (often in index funds or mixed funds) to grow over the long term. You can only withdraw the money once you reach retirement age (state pension age) - earlier is in principle not possible without tax consequences. During the accumulation phase, you benefit from tax advantages: the contributions are (within your annual allowance) deductible from income tax and you do not pay capital gains tax on the accumulated capital. Pension investing can therefore be an attractive way of supplementing your pension pot, especially for young people with a long investment horizon who are willing to take some risk for potentially higher returns.

What is retirement savings?

Retirement savings (also called bank savings for retirement) is a form of saving for later in a special retirement savings account. Instead of investing, your money is put into a savings account, often with a fixed or variable interest rate. This money is also fixed until your retirement date (usually you may only withdraw it from your state pension age). As with retirement investing, you get a tax advantage here: deposits are deductible (within your annual allowance) and the balance is outside the estate tax. Pension savings are seen as a relatively safe way to build up capital for later, because you are not exposed to stock market fluctuations. You know more or less how much capital you are building up, depending on interest rates, and have little risk compared to investing. The downside is that the expected return is usually lower than with investing, especially in times of low interest rates.

Agreements

Both options are similar in concept and serve the same purpose: you build up an extra pension pot yourself (the so-called third pillar of the Dutch pension system). Some key similarities:

• Tax benefit: Both retirement savings and investments are done in an escrow annuity account, which means that your deposits (within your annual/reservation allowance) are deductible and the assets are exempt from capital gains tax. This can save you hundreds to thousands of euros over saving outside of this arrangement.‍
• Blocked retirement account: In both cases, your money is fixed until (at least) your state retirement age. You cannot withdraw the balance mid-term without incurring a tax penalty (surrender charge) and paying missed taxes. So this requires that you really can miss this money until retirement.‍
• Supplementary pension: Both products are designed to supplement any pension shortfall. They are interesting if you have a pension gap (for example, if you are self-employed or do not accrue a full pension through your employer). If you have no pension shortfall (and therefore no annual margin), you can hardly use these routes.‍
• Benefit phase: Eventually the accrued capital at retirement must be used for an annuity payment (a periodic payment to supplement AOW and possibly an employer's pension). This applies to both capital from retirement savings and investments; the tax rules around this are the same.

Differences

Despite the similarities, there are clear differences between retirement investing and retirement savings. The main ones have to do with risk and return:

• Risk & Guarantee: With retirement investing, you run investment risk. The value of your investments may fluctuate; there is no guarantee that your deposit will grow - you may even suffer a (temporary) loss. Retirement savings, on the other hand, offer much more certainty: you get a preknown or variable interest rate on your savings, and your deposit itself remains intact. So you more or less know where you'll end up, barring interest rate changes. There is deposit guarantee: your savings are covered (per bank) by the deposit guarantee scheme up to €100,000, so even if the bank collapses, your balance is safe up to that amount. With investments, there is no deposit guarantee, although investor balances are often legally shielded should a broker or bank fail.‍
• (Expected) Return: Historically, the expected return with retirement investing has been higher than with retirement saving. Investing in a globally diversified portfolio can yield long-term average returns of say 4-8% per year (depending on your risk profile), while saving has long yielded 0-2% per year. Indeed, with retirement savings, your return depends on the savings rate, which is generally lower than returns on the stock market. In short: investing = chance of higher returns, saving = certainty of lower (but stable) returns.‍
• Fees: Retirement savings tend to be simple in terms of fees: many providers charge a one-time opening fee (e.g. ~€40) and no other ongoing fees for the savings account. With retirement investing, you typically pay annual fees (service fees and fund fees) on your investments. These fees weigh slightly on your net return. Note that fees can vary by provider (e.g. Brand New Day ~0.5% per year, Centraal Beheer ~0.3% per year, BrightPensioen works with fixed membership fees, etc.). It pays to compare rates.‍
• Flexibility in interpretation: With retirement savings, you can often choose between variable interest (interest that can change) or deposits with a fixed interest rate for X years. You also decide how much and when to deposit (within the tax allowance). With pension investing, you choose an investment profile (from defensive to offensive), or the provider automatically adjusts this via a lifecycle (young = offensive, toward retirement more defensive). So you have slightly more investment choices. Some people even combine both: part savings, part investment, to spread risk.

Risks

No financial product is without risk. These are the risks you need to watch out for in retirement investing and retirement savings:

• Risk in retirement investing: Investing has the well-known market and price risk. The value of your retirement investments can fluctuate widely in the short term. A stock market crash just before retirement can temporarily depress the value of your pot. In 2022, for example, offensive retirement portfolios lost around 15% in value. Fortunately, young people have time to make up for such a dip, but it's still a risk. Over longer periods, investments do recover historically - see the big plus in 2019, 2020 and 2021 - but there is no guarantee. You have to be able to mentally handle the fact that your balance on paper can go down. In addition: if you invest incorrectly (e.g. everything on one share) you run a huge risk; that's why pension providers always invest in index funds with a spread. Finally, when investing, you have inflation protection: stocks and other assets move with inflation over the long term, which is positive, but this is accompanied by volatility along the way.‍
• Risk in retirement savings: Retirement savings have little investment risk - after all, you get interest. Still, there are other risks. An important one is inflation/interest rate risk: if the savings rate is lower than inflation, your money loses purchasing power. For years, the interest rate was practically 0% while prices were rising; your assets did not grow in real terms then. Currently the interest rate is somewhat higher again, but in the future it may fall again or rise less rapidly than inflation. If you choose variable interest, the provider can adjust it at any time. If you choose a long-term fixed deposit, you run the risk that the interest rate in the market will rise while you are stuck with a lower interest rate (or vice versa, which can also be positive). Furthermore, again, your money is fixed: if you do want to access your retirement savings in the interim, you will pay a hefty tax penalty and it will be taxed as income. Finally, your savings up to €100,000 are guaranteed in one bank, but if you have more pension capital and it happens to be in one bank, the amount above that is not covered in case of bankruptcy - although this scenario is very unlikely and you can spread it over several banks if necessary.

Potential returns

Specifically, what can you expect in terms of returns right now? We look first at current interest rates for retirement savings accounts, and then at historical investment returns in retirement investing.

• Interest rates pension savings (Netherlands): Due to increased interest rates in 2023-2024, pension savings are again paying a reasonable interest rate. Currently (early 2025), online banks and insurers offer roughly the following interest rates: a variable rate around 1.8 - 2.0% per year, and fixed deposit rates of ~2.3% to 2.8% depending on maturity. For example, Knab Retirement Savings currently gives 1.90% variable and up to 2.35% fixed. Brand New Day offers 1.80% variable interest (as of 24-2-2025) and, for example, 2.40% fixed for 1-3 years, rising to 2.50% fixed for 10+ year deposits. Major banks are also participating: Rabobank's Rabo ToekomstSparen has interest rates of 2.65%-2.80% per year for long maturities. These interest rates can change with the market, of course, and historically are still relatively low (but considerably better than the ~0% of a few years ago).

• Average returns in retirement investing: Retirement investing returns depend on your investment profile (what % stocks vs bonds). Over the past ~5-10 years, many pension investors have achieved nice results, but with outliers up and down. Some indicative figures: at Brand New Day, which invests in index funds by default, a very offensive profile averaged about 8.6% return per year, offensive ~6.8%, neutral ~5.3%, defensive ~3.7%, and very defensive ~2.1% per year (measured over 2010 through 2024). Here we see the effect of more equities (= higher average returns, but also larger fluctuations). To illustrate: 2022 was a bad stock market year with about -15% for almost all profiles, while 2023 showed a strong recovery (+11% for neutral, even +17-18% for offensive). A provider like BrightPensioen (with a neutral profile fund) averaged ~6% per year over the past 9 years. Large pension funds (such as ABP) were around ~6% per year over the past decades.

‍Conclusion: in the long run, investments can yield about 4-8% per year depending on your risk, but there is no guarantee - they can also have a few lean or negative years. Saving now gives ~2% per year with certainty. This difference in potential return is exactly the trade-off between retirement investing and saving.

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‍Picture: Illustration of growing pension capital when investing. Investing can provide higher returns than saving in the long run, albeit with more volatility.

Pros and cons

Finally, we list the pros and cons of both options. What are the pluses and minuses of retirement investing versus retirement savings?

Retirement investing - Benefits:

• Higher expected returns: As mentioned above, higher returns are more likely over the long term. Historically, investments over 10+ years have almost always yielded more than savings. So your wealth can grow faster.‍
• Protection against low interest rates/inflation: You are not dependent on bank interest rates. With inflation and economic growth, corporate profits and dividends often rise along with them, which is reflected in the stock price. Thus, your pension pot potentially retains its purchasing power better.‍
• Tax benefits: As with retirement savings, you get tax deductions on your deposits and pay no capital gains tax during the ride. This benefit is the same for both, but it weighs extra if you earn a high return (the growth is then untaxed).‍
• Flexibility in investments: You can usually choose your risk profile. A more offensive profile offers more opportunity for growth, more defensive some more stability - you tailor it to your personal risk tolerance. Some providers (such as BrightPensioen) invest sustainably; so you can also choose to invest in a way that suits you.‍
• Long horizons work in your favor: Investing pays off best over long periods of time thanks to return-on-return. If you start young, your investment can grow exponentially over the years. Time is your friend in investing.

Retirement investing - Disadvantages:

• Investment risk: It remains the biggest drawback: there are no guarantees. You have to be able to live with uncertainty and the possibility of setbacks. Not everyone sleeps well at the idea of the stock market fluctuating your retirement money.‍
• Less certainty about final amount: Because the outcome is variable, you don't know exactly how much pension you will have in the end. You can use a retirement planner with conservative assumptions, but it's still a forecast.‍
• Cost and complexity: Investing often involves slightly higher costs (service fees, fund fees). It also requires an understanding of what investing entails - even though investment managers do the work for you, you need basic knowledge to keep it going during dips. In effect, you become your own pension fund manager over your deposits.‍
• Money fixed: As with retirement savings, your money is fixed until retirement age (so this is not a unique disadvantage of investing, but it is something to be aware of).

Retirement savings - Benefits:

• Safety and security: The biggest plus. Your deposit is not exposed to the vagaries of the stock market. You get a fixed or variable return in the form of interest, and your savings balance cannot decrease due to market movements. As a result, you're pretty sure how much you'll have approximately at maturity (especially with fixed deposits)‍
• No knowledge of investing required: Anyone can open a retirement savings account; you don't have to be an expert. The product is clear and understandable - basically a savings account with a lock on it. That makes it low-threshold.
• ‍DepositGuarantee】As mentioned, a retirement savings account at a bank falls under the deposit guarantee system up to €100,000. So you run virtually no risk of losing your nominal deposit. That gives peace of mind.‍
• Also fiscally advantageous: You get the same tax benefit as with pension investing (deducting deposits, no capital gains tax). So you don't sacrifice on that front.‍
• Suitable for short horizons: For example, if you are going to retire within 5-10 years or have already retired and want to bank savings for a while (reserve room), pension savings is ideal. You then run no risk of an interim stock market dip just before your retirement benefits start

Retirement savings - Disadvantages:

• Lower (potential) return: In exchange for security, you sacrifice yield. Savings rates are historically much lower than stock market returns, especially after accounting for inflation.
• In periods of low interest rates, your money hardly grows. So you have to put in more to build up the same capital as someone who invests (or settle for a smaller pension pot).‍
• Inflation risk: As discussed, high inflation can affect the real value of your savings, especially if interest rates are (just) below inflation. You don't run an investment risk, but you do run the risk that your purchasing power will decline.‍
• No unexpected windfalls: Whereas an investor might benefit from a few excellent stock market years and have a much higher balance than expected, in savings such a windfall will not occur. Your return is more or less limited by interest rate agreements.‍
• Money fixed: Again, you can't just access your money. It's less of a disadvantage of saving per se (it's now the tax condition), but something to mention - you have the lack of interim flexibility with either route.

Conclusion and practical tips

What to choose? Ultimately, the choice of retirement investing vs. retirement savings depends on your personal situation, preferences and financial goals. Are you young and do you have decades left until retirement, and don't mind taking some risk? Then retirement investing can be interesting because of the higher expected return in the long term. Do you have a short horizon until retirement or do you sleep better with certainty? Then retirement savings is probably more suitable, because then you won't experience any surprises and you know exactly where you stand. In practice, many people combine the best of both worlds: for example, invest a portion for the medium term and lock in a portion in pension deposits for security. That way you spread risk and return. Remember: there is no right or wrong - it's about what best suits your situation.

Practical tips for making the most of your retirement savings:

• Utilize your annual margin: Every year, check how much annual margin (or reserve margin) you have - this is the amount you can deposit into a pension product at a taxadvantage. You can calculate this through the Tax Office or bank tools. Make maximum use of the headroom, as this yields tax refunds of 37% to as much as 49.5% of your deposit.‍
• Compare interest rates and fees by provider: Differences between providers can be large. Look around at banks (Knab, Rabobank, ABN, etc.) and specialized players (Brand New Day, BrightPensioen, Centraal Beheer) for both retirement savings and investments. Pay attention to the interest rate offered (for savings) as well as the costs and investment options (for investments). A small difference in costs or interest can make a big difference in the final amount over decades. Fortunately, much of this information is public: interest tables and average returns can be found on their websites.‍
• Determine your risk profile and horizon: Ask yourself honestly how much risk you are comfortable with. Can you tolerate a 20% drop without panicking? Or would you rather not? Tune your choices accordingly. Younger people can usually take more risk (more stocks) because they have a long horizon to sit out fluctuations. As you get older, you can make your profile more defensive or switch (partly) to retirement savings to cash in your gains.‍
• Start on time (preferably as early as possible): Time is a hugely important factor due to the effect of interest-on-interest. Starting early with a relatively small amount can yield more in later life than starting late with a large amount. Moreover, you can then quietly weather a few lesser investment years. So starting during your studies or first job (even with €50 a month) can be rewarding.‍
• Keep a long view when investing: If you choose retirement investing, take a long-term perspective. Don't look at your balance daily, but realize that ups and downs are normal. Try to invest periodically (spread out over time) so as not to invest all your money exactly at a peak or trough. And don't deviate headlong from your plan if the stock market gets turbulent. Retirement investing is meant to be "boring" - let it pay off on autopilot and focus on the long term.‍
• Consider counseling or resources: Still unsure? Take advantage of online retirement comparators, blogs (like this one 😃) and calculation tools. Many providers offer free retirement advice sessions or webinars. Sometimes an independent financial advisor can help you tie the knot, especially if your situation is more complex.

Conclusion: Both options - retirement investing and retirement savings - can be an excellent way to arrange a nest egg for your old age. One is not necessarily "better" than the other; it's all about what suits you. The information and tips in this blog will help you make an informed choice. In any case, start your retirement planning on time, take advantage of your tax advantages and choose an approach that makes you feel good.