What you did not know about pension plans


With the years that you have contributed to Social Security, what pension would you be entitled to? And if he wanted to retire earlier, how much would that amount be reduced? With that pension would you have enough to maintain the current standard of living? Would you have enough to eat, travel, dedicate a portion of your income to your grandchildren, who are already starting to grow? Is it worth investing in a pension plan? How does a pension plan work?

How a pension is calculated

How a pension is calculated

The first thing that Juan needs to know in order to calculate the pension that would correspond to him is his work life report and contribution bases, which the Social Security sends once a year to all workers. With this information you can make a calculation of the retirement pension in the Electronic Headquarters of the Social Security. Other entities such as Fundación MAPFRE also offer help programs for this calculation.

If Juan has quoted during the last fifteen years for the maximum base or the minimum base, the program will have incorporated these bases automatically and will provide the regulatory base for the pension, which will be updated. The program will also provide you with the percentage applicable to the regulatory base, based on the legal age of retirement and the justified contribution period. If the result obtained by Juan does not meet your expectations, it is when you should think about supplementing the public pension with a pension plan.

The plans are collecting the contributions of the person, who can do until he retires with full flexibility. Upon retirement, you can charge a supplement to your pension, either in the form of a single payment or as periodic payments. The contracting party can always recover his money if he needs it for certain serious events, such as long-term unemployment. If you die before the collection date, the designated beneficiary would be your beneficiary.

Pension plans must be assigned to a pension fund.

Thus, a pension fund is an independent equity in which the contributions of people who have hired a pension plan, called participants, are accumulated. This means that if the company that is managing a pension fund goes bankrupt, people would have guaranteed the value of their investments.

Pension funds can invest in fixed income (for the conservatives), variable (for those seeking maximum long-term profitability) or mixed (they diversify the investment to achieve a return higher than fixed income in the medium-long term). The pension plans also involve a tax saving: the amount of the contributions is deductible in the tax base of the annual IRPF.

The moment of the decision: what benefits do pension plans have?

The moment of the decision: what benefits do pension plans have?

Juan should bear in mind that his future pension can be reduced for several reasons: the number of years of contributions needed, which, for example, in 2017 will exceed in three and a half years what is required in 2012; the age at which early retirement is accessed, and the sustainability factor, the correction that is applied to the pension according to the life expectancy of the population – more life expectancy, less pension per head.

It is estimated that in 2031 25.5% of the population will be over 65 years old, and in 2066 that percentage will reach 34.4%. Another factor to take into account is the non-revaluation of pensions, which since 2014 do not grow according to the CPI.

The planned pension can be reduced for several reasons, such as the requirement of years of contribution or early retirement age

Is it necessary to contract a pension plan? It is the recurring question of all those who, like Juan, are anxious to find out about their retirement. Although pension plans can not ensure a certain profitability by law when due, they do have a series of advantages, such as being a very flexible savings instrument, because you can make the contributions you want and when you want, just with the existing legal limitations.

Pension plans are a savings instrument for cases of retirement, death, long-term unemployment or serious illness. The money that is contributed to the plan is invested in different markets. For the most risky investors, there are plans based on variable income, which give a medium-long term return to a somewhat higher risk. For the more conservative, there are other specific plans, such as those that invest only in fixed income.

It is estimated that the ideal age to start investing in these plans is 34.4 years, although most start doing it eight to ten years later. Another of the guaranteed benefits of pension plans are the tax deductions they have. With the plans it is the same as with the rest of the contributions made in the different social security systems, which can be deducted from the IRPF with absolute limits and depending on the volume of work and / or economic activities. The limit of the contributions is € 8,000, while the reduction limit is 30% of the returns.


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