Allowance for supplementary pension contributions

What it means

The allowance for supplementary pension contributions is an amount by which individuals may reduce their tax base for their own contributions to the third pension pillar. The law caps it at no more than 180 euros a year, and it applies only to contributions the saver paid personally.

It is one of the tax-free allowances alongside the basic personal allowance and the spouse allowance. Its purpose is to encourage people to save for retirement themselves in addition to state pension insurance.

Only savers who meet the statutory conditions, particularly regarding the type of participation contract and the way benefits are paid out, are entitled to it. Contributions paid by the employer do not count towards the allowance; they are the employee's income with their own tax and contribution rules.

How it works in practice

Employees claim the allowance in the annual reconciliation with their employer, others in their tax return. The supporting document is a certificate from the pension company showing contributions paid for the year, usually sent at the start of the following year.

Given the cap, the tax saving is relatively small, but over long-term saving, together with the employer's contribution and fund returns, it is worthwhile. Many employers offer a supplementary pension contribution as a benefit, often on condition that the employee also contributes.

When comparing with other ways of saving, such as unit-linked life insurance or investing directly, consider not only the tax relief but also fees, fund performance and withdrawal conditions. The advantage of the third pillar is the combination of tax relief and employer contribution.

What to watch out for

If a saver withdraws savings early outside the statutory conditions, they may lose the tax advantage and have to pay back the tax. Before withdrawing, check the payout conditions so that tax savings from previous years do not turn into an additional liability.

The cap applies to total contributions for the year, not to each contract separately. Someone with several contracts can claim the allowance only up to the overall statutory limit. The tax return should include only contributions actually paid in the year concerned.