When should you hire a pension plan offered by the company where we work?

In the past we have talked about occupational pension plans (PPE) offered by companies. The bottom line was that they tend to be unprofitable and also do not allow you to choose, since they are selected by the company in which we work. Therefore they seem unattractive to the worker.

However there is two reasons why it may be convenient to hire them, and they are not negligible. One is the tax savings and the other is the company’s contribution. Both factors can make them a highly recommended option.

Taxation

Pension plans allow deferring personal income tax at the time of redemption of the plan. Contributions to the plans allow the amounts contributed to be deducted from personal income tax and pay the corresponding taxes only when the redemption is made.

This implies that if we have a high marginal and we hope to have it lower in retirement, pension plans are a good idea. And since the reform of this year the maximum deduction is much higher in the case of PPE (8,000 euros) than that of individual pension plans (2,000 euros).

Also if we take into account profitability, which although it is not very bulky over many years can be relevant, tax savings can grow and offset the higher income tax rates versus capital gains rates, What we already explained extensively on one occasion.

Company contribution

But the other reason PPE can be interesting is because it usually companies add an extra contribution. That is, many companies that have PPE for their employees have stipulated that if the worker contributes one amount, the company contributes another. For example, some companies match the worker’s contribution (with a certain limit). This would allow that if the worker contributes 1000 euros a year to the PPE, the company contributes another 1000 euros.

This option is very interesting for the worker. Even if the profitability of the plan is very bad, at the time of the rescue the worker will get much more money than the one contributed.

My advice here is that if the company has a PPE in which it contributes money and the worker can afford to save in the long term (we must not forget that pension plans cannot be rescued, in general, before 10 years) you always have to hire them. That extra that the company contributes is free money that is better not to miss.

This contribution from the company is quite frequentSince at the moment the only companies that have PPE are the largest and they usually negotiate with the unions to make these contributions in exchange for more modest wage increases. Another issue is whether PPE is generalized to smaller companies, as the government claims.


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