As we all know, the future of pensions is somewhat uncertain for all Spaniards. According to a study by ING, 9 out of 10 people believe that they will not receive a public pension when they retire or that it will not be enough to maintain their standard of living.
Even knowing what is coming, very few Spaniards have considered any strategy to be able to guarantee their retirement, according to the orange bank’s report, 7 out of 10 of those surveyed had not considered doing anything about it.
In general, we tend to underestimate the importance of saving for our retirement, especially in young people because of the large amount of time we have available, “we will have time to save in the future”.
The problem is that time is the vital element to be able to achieve profitability for our retirement. It is the basis of compound interest, the sooner the better.
The ideal time to start saving is when we enter the labor market, because of the large margin of time we have available. The sooner we start, the less effort we will have to make to achieve our objective. “The greatest ally in a long-term investment is time and, in this sense, one of the great advantages of starting as soon as possible is that it allows compound interest to work for us,” explains José González, director of pensions at Santander.
In short, the earlier we start accumulating capital, the greater the effect it will have on our final salary.
The important thing is to get into a habit and not abandon it, to maintain the amounts we allocate to our plan.
Now, if we are going to study solutions, which is better, a pension plan or a savings plan?
In a first analysis, the savings plan is usually more interesting, due to the possibility of having the money much more available. On the other hand, the pension plan may be more interesting because of its tax advantages in the reduction of the taxable base in the income tax return.
In the following, we will study both in more detail:
- Savings plan.
Savings plans have different characteristics in terms of profitability and availability, depending on the entity where they are contracted. What is certain is that they all work the same when it comes to taxation, since only the part in benefit is taxed. However, if it is redeemed before time, it is taxed on the value as a whole.
Another characteristic of the savings plans is that they are very safe products, guaranteeing you 85% of your invested capital, being able to include in the plan fixed or variable income securities.
It is necessary that in order to be taxed only for benefits, 5 years of validity are fulfilled, although I emphasize, it depends on each savings plan (since there are quite a few that offer the availability after two years).
If you do not maintain this term, you will be taxed on the total capital, that is to say, the benefits plus the initial capital and your contributions.
The first 6,000 euros will be taxed at 19%, 21% up to 50,000 euros and higher amounts at 23%.
- Pension Plan.
It is the only savings product whose contributions are tax deductible in the IRPF taxable base, with a limit of 8,000 euros per year (although according to the revision for January 2021, the annual contribution limit will be 2,000 euros per year).
In pension plans, commissions and penalties are usually applied if we withdraw the money before retirement.
In this asset, the capital as a whole is taxed for personal income tax purposes. In other words, the money you get back from the pension plan will be taxed in the same way as earned income (as payrolls are). The current tax brackets are as follows.
- 0 a 12.450 € = 19 %
- 12.451 € a 20.200 € = 24 %
- 20.201 € a 35.200 € = 30 %
- 35.201 € a 60.000 € = 37 %
- More than 60.001 € = 45 %.
If you choose to redeem the pension plan in the form of capital, that is, to recover all the money at once, you must add the economic amount accumulated in the fund to the income of that year, so it is very likely that you will be taxed at the maximum rate of 45%.
Therefore, we can conclude that the savings fund means a lower taxation, since in addition to being taxed only for the benefits, the interests are much lower.
Savings plans are better for those savers who invest a moderate amount of capital, since in addition to the above mentioned taxation, in the event of any unforeseen event we can dispose of our capital and not be charged commissions.
On the other hand, if we have a large amount of capital saved to invest in a pension plan, we can be compensated more, since the more we contribute, the more we deduct from the IRPF and therefore, we will pay less tax in the IRPF despite paying more tax in the pension plan.
