At Futurseguros, your insurance agent in Mallorca, we want to promote the pension plan, so maligned by successive governments. We believe that it is a good product for the right client: someone who wants to save in the long term and wants to have tax advantages. To see in more detail, How to save taxes with your pension plan? Click here.
If you are self-employed, take a look at this article on the new specific pension plans for the self-employed, which have higher tax relief limits.
If you want more information about this product, is it worth it? Contact us and we will inform you without obligation.
What is a scheme plan?
Pension plans, retirement plans or pension scheme (PP, PPA) are financial products designed for long-term savings. Their main objective is to generate capital that can be drawn on during retirement to supplement the public pension, accumulating funds throughout your working life, with the idea of having a financial back-up when the time comes to retire.
Here are the key points about pension schemes:
Contingencies covered (when it can be used): Pension plans are activated in specific situations, such as retirement, occupational disability, death or long-term unemployment.
Flexible contributions: You can make regular contributions (monthly, for example) or one-off contributions (whenever you wish). The key is to maintain a constant savings discipline, so it will be easier for you to have the necessary capital for your retirement.
Investments: Internally, pension plans do not differ much from other savings products. They can invest in fixed income, equities or a combination of both. It is important to understand how the funds are managed and what risks are involved, to have a clear risk profile (how much I can risk losing in order to gain more return).
Difference with PPAs: Pension plans are sometimes confused with PPAs (insured pension plans). The main difference lies in their legal form. PPAs are integrated into an insurance policy, whereas pension plans are independent financial products, which allows insurers to sell this type of product.
In short, pension plans are a valuable tool for securing a more stable financial future in retirement, when we are expected to have less income. It is essential to be well informed about the options available and to choose a plan that suits your needs and objectives, as a basic rule if someone is close to retirement age it is advisable to take out a more conservative (less risky) pension plan.
How profitable is a pension plan?
It will depend on what it is invested in, but as it is a retirement product, they do not pay the returns that are generated over time, but rather all the returns are accumulated, and go into the plan’s assets on redemption, paying tax when they are redeemed and not when they are generated.
An advantage of the pension plan over other savings products is that it can be transferred to another plan without paying tax on the accumulated gains, which would accumulate in the next plan and would only be paid if it is withdrawn.
In addition to the advantage of not being taxed until the redemption, pension plans have tax advantages, as they reduce the contributions, reducing the payment of taxes, in another post we will talk about the tax relief of pension plans.
When can I withdraw from my pension plan?
In general they are illiquid products, at least in the short term, but in certain situations the money can be “withdrawn”, which in the case of plans is called a surrender.
There are several cases in which a pension plan can be withdrawn:
-Retirement.
–Long-term unemployment (and exhaustion of unemployment benefits).
-Disability, severe dependency, serious illness.
-More than 10 years have passed since the contribution (you can redeem the piece more than 10 years old).
Types of redemption of a pension plan:
-In capital: Take out the whole plan at once (usually less convenient for the client, depending on his income level).
-Rent: A monthly/quarterly/semi-annual/annual payment (fiscally more convenient).
-Mixed: A piece in a capital or several and then an income.
This can be changed, it does not have to stay the same.
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