[vc_row][vc_column][vc_column_text]
Is a pension plan good, is a pension plan advisable, and is it advisable? Like most things in life, the answer is both complex and easy: it depends. Faced with the loss of purchasing power of pensions and the unknowns facing the new generation of contributors, in this article we look at the advantages and disadvantages of a pension plan.
Before taking out a pension plan, it is necessary to know the pros and cons of this savings product. Financial planning is crucial, which is why at PIB Group Iberia we always advocate financial advice when choosing the best plan for each profile and, above all, the right way and the right time for its redemption.
Having all the information will help you make a smart investment in your pension plan.
Advantages and disadvantages of a pension plan
Below, we take a closer look at the features you need to know about this retirement-oriented savings product.
Advantages of the pension plan
Tax benefit in the pension plan
The pension plan is the only savings product whose contribution is tax deductible in the Personal Income Tax Base. In other words, annual contributions to this plan reduce the taxable base of the tax return, so that the taxpayer pays less tax.
You should bear in mind that the annual contribution limit (from 1 January to 31 December 2021) is 2,000 euros. In other words, each year you can only contribute that amount to your pension plan. A reduction to €1,500 has been approved for 2022.
Let us imagine that a person who earns 28,000 euros per year decides to make the maximum contribution of 2,000 euros per year to his pension plan. For the tax authorities, he or she will be taxed on 26,000 euros. For many savers, therefore, one of the main advantages of the pension plan is its attractive taxation when it comes to making contributions.
Products for different investment profiles
One of the main mistakes is to choose the first pension plan you are offered. The reason is that there are a multitude of options and it all depends on your situation and your investment profile: whether you are more conservative or less conservative.
For this reason, there are different types of pension plans, such as the Assured Pension Plan (PPA) where investments are guaranteed under certain conditions. If the profile of the saver is more risk-oriented, there are some savings plans that provide a fantastic return, but, on the other hand, they are not guaranteed. For this reason, we always insist that it is necessary to be very well informed about the risk to be assumed.
Possibility of transfer
The pension plan is transferable between entities, i.e. you can change company without having to surrender the product if you are not convinced by what you are offered. You can transfer it as many times as you want and you cannot be charged taxes or commissions.
Supervised by the Directorate General for Insurance and Pension Plans (DGSFP)
The Directorate General of Insurance and Pension Plans (DGSFP), which reports to the Ministry of Economic Affairs and Digital Transformation, is responsible for the supervision of pension plans. This entity is dedicated to monitoring the proper functioning of the sector and ensuring adequate protection of savers through pension plans.
Disadvantages of a pension plan
Recovery on retirement and other assumptions
If you are looking for a savings product with which you can easily dispose of your money, forget the pension plan. As its name suggests, this product is aimed at guaranteeing purchasing power after retirement, so it cannot be withdrawn at any time. These are the assumptions that are included in the legislation:
- Retirement
- Serious illness
- Death of the participant
- Unemployment
- ERE
In 2015, a regulation was passed to also take into account the time elapsed, so that you can start to get your money back 10 years after the first contribution.
Investment limited to 2,000 euros in 2021 and 1,500 euros from 2022 onwards.
Previously an annual contribution of up to 8,000 euros was allowed, but now a pension plan is limited to 2,000 euros per year in 2021 and from 2022 it drops to 1,500 euros.
Plan the timing of the rescue well
At the time of redemption, the amount will be taxed as earned income in the income tax return. In other words, although you have benefited from the tax savings at the time of the contributions, in the end you will have to pay taxes. For this reason, we continue to insist on the need for good advice to avoid the redemption of our pension plan becoming a “tax axe” from the Treasury.
Except for the PPP, it is not a guaranteed product.
Pension plans are not generally guaranteed savings products, i.e. there is a possibility of losing money if you do not choose where to invest. Only the aforementioned Insured Pension Plan (PPA) can guarantee it in the event of any of the aforementioned scenarios and, for this reason, is the one we always recommend to more conservative profiles.
Pension Plan: Yes or No?
According to the Inverco Observatory, 20 % of Spaniards already have a pension plan. This is an interesting option that has grown at the same rate as the drama of Social Security and our future pensions. Often, a dissatisfied saver's dissatisfaction with his or her pension plan is due to poor initial advice or simply a lack of information.
PIB Group Iberia always insists that this product is not for everyone, but that each person's situation must be studied when choosing the best savings product.
In many cases the Pension Plan becomes the perfect solution, but certainly not the first one offered to us. In our insurance brokerage we have a Savings Department specialised in advising you on pension plans and savings products. In this way, you can compare with us the plans offered by a multitude of institutions without going from branch to branch and receive the financial advice you need to make this decision about your money.
[/vc_column_text][/vc_column][/vc_row][/vc_column_text][/vc_column][/vc_row].
