the keys to knowing how much is convenient for you per contribution and its returns

In 2021 we have seen a dramatic change in the long-term tax benefits of the long-term savings vehicles.

Since 2015, the maximum amount to be deducted from the set of maximum annual contributions in pension plans was 8,000 euros per year or 30% of the net income from work and economic activities (the lower of the two amounts). But already in this current year, this maximum limit is reduced to 2,000 euros.

We see a reduction in tax benefits in pension plans but the Government is promoting employment pension plans (PPE). Its tax benefits were increased or expanded, passing the deduction limit from 8,000 euros to 10,000. Hence, today, fiscalmnete are the most coveted investment vehicle to pay less taxes.

Is a PPE right for us?

First of all, we must understand the PPE performance. They involve a party that is the promoter (the company), the control commission that would be formed by the unions to ensure the interests of the workers and the pension manager chosen by said commission.

Due to this architecture, global companies do not promote this savings vehicle for their employees, although that does not mean that they cannot participate in one. Many SMEs choose to join a jointly promoted employment pension plan, with more simplified management, greater agility and lower cost

On the part of the employees, we must remember that they can voluntarily join the PPE all workers who have a working relationship with the company. So the company can generate a loyalty strategy.

However, a problem of freedom of choice is born since subscribing to this product would be conditioned by being a worker of the company, if not there is no possibility of access.

Therefore, to see if this product is suitable for us or not, we may product portfolio is not tailored to the worker’s risk profile and is not suitable for your interests and other plans would better meet your needs, whereas there is a wide range of individual plans to choose from and the government has cut their tax benefits.

PPE returns

As we can see in the following table, employment systems have tended to offer better returns than the set of plans, except in the last year.

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Analyzing the Inverco data updated up to the first quarter of the current year, we find the following evolution of the employment plans:

  • To one year: set of plans (15.15%); employment systems (13%); -2.25 percentage points.

  • Three years: set of plans (3.06%); employment systems (3.38%); +0.32 percentage points.

  • Five years: set of plans (3.12%); employment systems (3.23%); +0.11 percentage points.

  • Ten years: set of plans (3.61%); employment systems (3.95%); +0.34 percentage points.

  • To fifteen years: set of plans (2.49%); employment systems (3.13%); +0.64 percentage points.

  • To twenty years : set of plans (2.57%); employment systems (3.25%); -0.68 percentage points.

As we see, there are no spectacular returns on these investment vehicles. In the long term, employment plans perform better than pension plans as a whole, which may be an argument in favor of the government incentivizing them with its fiscal windows.

Despite the low profitability, according to an analysis by the Bank of Spain, these returns would be below the public pension system that tends to offer an IRR around 2.4%. Any of these products is better than contributing to the public pension system via social contributions.

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