Why invest in a pension plan?
1. Pension plans in the face of shares
The differences between investing in a pension plan or doing so directly in shares are as follows:
Diversification: The venturer who makes contributions to a variable-income pension plan is actually investing in a diversified stock portfolio, while investing directly in stocks rarely achieves that degree of diversification. In addition to a pension plan it is possible to invest in international shares at a much lower cost than to do it directly in foreign shares.
Taxation: Direct investment in shares does not enjoy any tax benefits as opposed to investment in pension plans.
2. Pension plans versus investment funds
The large differences between a pension plan and an investment fund are located both at the tax level and at the level of the availability of money.
With regard to taxation, there are two major differences. First of all, investors in pension plans can deduct from their taxable base the contributions they have made while the investment fund sharers do not. However, it should also be mentioned that, at the time of the reimbursement, while the funds are taxed only for the accumulated earnings to a rate of 18% (if more than one year has passed between the purchase and sale), the pension plans are taxed as work performance For all the money withdrawn although with a deduction of 40% if the accumulated antiquity is greater than the two years.
As for the availability of money, it should be mentioned that while pension plans cannot be recovered in principle until retirement, investment funds have immediate availability.
3. Pension plans versus unit linked
A unit linked (also called Segurfondo) is a life-saving insurance that is contracted for a certain period of time and in which the premiums are invested in funds or baskets of investment funds. As such their taxation is very different from that of pension plans. In fact, a unit linked has no tax advantage at the time of making the contributions. As for the tax treatment at the time of the rescue, this will depend on the accumulated antiquity in the unit linked. At more than 2 years and less than five, the Venturer will pay the marginal rate by 70% of the profits; More than five years and less than eight, for 35% of the profits and more than eight years for 25% of the profits.
The unit linked as well as the pension plans allow to move from one investment to another without taxation to the Treasury but the possibilities are much more limited because the change must necessarily be made within the unit linked, which cannot include more than 10 funds or Baskets of funds. In addition, in some cases the change from one fund to another carries a cost while in the plans no (practically no plan charges for transfer).
The cost of a unit linked is also usually higher than that of a pension plan because it is not only necessary to count on the cost of the unit linked itself but also with the commissions of the funds in which the unit linked invests and the cost of the associated life insurance to the product.
4. Pension plans versus retirement plans
Although the name can lead to confusion, a retirement plan is a totally different product from a pension plan.
First, a retirement plan is contracted, like a unit linked, for a given period and enjoys the same taxation as the latter. Unlike pension plans, retirement plans have a guaranteed minimum return (although this is very small).
But on the other hand, a retirement plan invests almost exclusively in fixed income while the possibilities of investing in pension plans are much broader (they can invest in stocks, fixed income, currencies,…).
5. Pension plans versus deposits
Unlike deposits, pension plans are the ideal instrument to invest with a long-term horizon. The deposits, in fact, only serve to save (in fixed income) in very short term. If one wants to obtain a good profit in the long term, it is necessary to invest a part of the portfolio in shares, which do not allow the deposits but the pension plans.
On the other hand, deposits do not have any of the tax advantages that pension schemes enjoy.