Balancing method for pension payments from abroad

The Tax and Customs Administration published an updated position on 27 August 2025 about the so called "balancing method" for pension payments which were partly built up abroad without any tax relief. This is relevant for employees who live in the Netherlands and receive a pension while their pension (or part of it) was accrued abroad with no tax facility.

The balancing method prevents pension from being taxed during the phase when it is paid, while the pension contributions were accrued without tax relief. If a taxpayer receives a pension part of which was built up with no tax relief (deduction of contributions), then that part may be paid out tax free.  

The application will differ depending on the pension scheme. The following example shows this: 

“A former employee receives an annual pension of €7,500 from the retirement date. The employee did not receive any tax relief on a total amount of €12,500. Of the 30 years in service, 10 years of pension were accrued abroad without tax relief.”

1. Final salary scheme: A portion of each pension payment remains untaxed, calculated based on the number of years’ service without tax relief in relation to the total number of years’ service. This allocation is applied until the year in which the total amount of untaxed pension benefits is the same as the non-facilitated amount of the pension accrual (in the example: €12,500).
   
   Calculation of the example: 10/30 = 1/3rd of the €7,500 = €2,500 remains untaxed each year; the remaining €5,000 is taxed. After 5 years the non-facilitated amount will have been ‘used up’ and from the 6th year the full pension will be subject to tax. 
   
   
2. Average salary scheme: The amount received annually from the foreign pension accrual (including indexation) remains untaxed until the amount of non-facilitated pension accrual is reached.
   
   Calculation of the example: let’s say that the average salary entitlement accrued abroad, including indexation, amounts to €1,875 per year. This amount of the pension benefit is then tax exempt each year, while the remaining part (€7,500 -/- €1,875 = €5,625) is subject to tax. After 6 years and 8 months the entire tax-free amount will have been used up. From that moment the full amount of the pension will be taxable.
   
   
3. Defined contribution scheme: The exemption is calculated as the portion of non-deducted contributions relative to the total amount paid in.
   
   Calculation of the example: let’s say that the total in contributions paid during the years of service amounts to €40,000. €12,500 / €40,000 = 5/16ths of each pension period will be exempt. This amounts to €2,344 per year. The remaining €5,156 will be taxable. After 5 years and 4 months the entire tax-free amount will have been used up. From that moment the full amount of the pension benefit will be taxable. 

Since the introduction of the Future Pensions Act, pension accrual is only possible under a defined contribution scheme. The balancing method works in the same way here, as described above in variant 3. 

This also applies when pension entitlements have been converted and the Future Pensions Act applies in full to the converted pension entitlements, i.e. if the old pension entitlements have been "transferred".

Please note that if the employee’s pension has been accrued under multiple tax-facilitated pension schemes, the balance must be calculated on a pro rata basis for each tax system.