Insured Pension Plans, guaranteed savings for your retirement

by Alex Musk

The Assured Pension Plans ( PPA ) are insurance specifically conceived and designed to complement the retirement pension and, as such, offer a guarantee of interest and are based on actuarial techniques.

The barrage of news about the Social Security account statement, the reforms to be undertaken, and the more than uncertain amount of our future retirement pension make us more interested in saving for that moment every day, but:

What if it also benefits us fiscally in our annual personal income tax return?

What if it can also help us to cover and protect our family in the event of death or disability?

What if it guarantees us the capital to be received at maturity from the time of contracting?

We would have a product designed for retirement with all these advantages. Let’s see it in detail:

Tax treatment, in this section, we will have to distinguish between:

Contributions:

  • Contributions to the PPA  are deductible from the personal income tax base with a maximum limit of 2,000 Euros per year, or 30% of the sum of the net income from work and economic activities received, whichever is less (*).
  • For disabled people with a degree of disability equal to or greater than 65%, the limit will be  24,250 Euros, both for contributions made by the disabled person himself and for those made in his favor. Likewise, the limit for contributions made in favor of people with disabilities by third parties will be 10,000 Euros per year for each contributor, the contributions made by them to their own plans being independent.
  • In the case of Insured Parties with incomes of less than 8,000 Euros per year,  the spouse may make contributions in their favor up to a maximum limit of  1,000 Euros per year.

Capital disposition:

  • The yields will not be subject to personal income tax until the moment the benefit begins to be received. When the benefits are received, they will be considered income from work, subject to the corresponding withholding, and will be included in the tax base of the year in which they are received.

family coverage

The main covered contingencies provided for in current legislation may be retirement (main coverage), death, disability, and dependency.

Being able to include risk coverage in our Insured Pension Plan is a great advantage since it allows us to:

  • Guarantee our family’s important capital to help them cover their needs in the event of death.
  • Ensure an income in case of disability or dependency,  necessary to compensate for both the foreseeable decrease in income and the increase in expenses that occurs in these situations.

The premiums paid for risk coverage enjoy the same tax benefit as those contributed to retirement savings!

capital guarantee

It is very important to bear in mind that in the Assured Pension Plans, the capital to be received is guaranteed and does not depend on the evolution of the financial markets or interest rates. This is a key difference compared to many pension plans that invest in equities, transferring the risk to the saver.

can be transferred

The Law allows the economic rights of both Pension Plans and other PPAs to be transferred, totally or partially, to the Insured Pension Plans with a simple procedure.

Liquidity

Although it is a product intended to reach retirement age,  current legislation allows mathematical provisions to be made available in the following cases:

  • In the event of any of these main contingencies:  Retirement, disability, death or severe dependency, or great dependency
  • In the following  extraordinary liquidity cases:

Long-term unemployment, serious illness, and from the year 2025, it will also be possible to have the liquidity corresponding to contributions that are more than ten years old.

How is a pension plan similar to a PPA?

As we have mentioned, both enjoy the same tax treatment, which, together with the possibility of mobilizing them between Entities and their liquidity conditioned on retirement or compliance with any of the legal assumptions indicated in the previous section, would be the three points in common.

What are the differences between a PPA and a pension plan?

Although they may seem identical to us, pension plans lack two important characteristics of PPAs that we must bear in mind when choosing our retirement and family coverage product:

  • Pension plans may NOT include additional coverage for death, disability, or dependency.
  • Pension plans  DO NOT guarantee an interest rate throughout the term of the contract.

They are promoted by one or several financial entities, and as a participant, we are exposed to possible negative returns,  an aspect to take into account when we want to consolidate capital for our retirement.

If you are a participant in a pension plan, the best way to consolidate your long-term savings effort is to mobilize your consolidated rights to a health insurance Pension Plan, guaranteeing you the capital to be received at the time of your retirement and the coverage and protection of your family in case of disability or death.

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