Having a normal pension plan or PPA pension plan in Spain has many benefits. In this blog we are going to outline the two main types of pension and pros and cons of each. The blog will also outline some investment and savings plans with low risk, where funds invested are guaranteed.
PENSIONS IN SPAIN
The two types of pension are a normal pension and a PPA.
The main difference between these 2 types of pension is the PPA is guaranteed low risk where as the normal pension will have some risk associated with it but the majority of plans are guaranteed.
Due to this the return at the end of the policy is potentially greater with a normal pension but also there is potential that you will receive less than you invested in the pot. With the PPA there is no such risk of losing any funds.
You are probably asking if I go with a low risk and low return pension what is the point? Why don’t I just take out a savings plan? This is a very good question and the single most important reason is that you can offset the normal and PPA pension against your taxes. Both the types of pension allow you to do this.
Alternatives to a Spanish Pension
If you already have a pension plan in place or are not keen on taking one out there are alternatives. The main drawback of savings or investment plans is they can not be offset against your taxes.
The main benefit of having one of the above plans is that they you are able to put a maximum of 200,000 euros into the plans on a yearly basis.
Added to this these plans guarantee what you put in. The only risk is on the extra returns the plan makes for you whereby you are taxed a minimal amount.
In the past Spanish banks rewarded individuals that kept high liquidity and funds in their bank accounts. However due to world wide low interest rates this is not the case any more. In some instances banks will only keep large amounts of funds in a bank account if a high risk investment plan is purchased.
Key info on normal pensions and PPA pensions in Spain
So now you know the difference between the two types below are some key details which both include:
– You can only cash in the pension at retirement age which is usually between 65 and 67 years old
– The payment when you cash in the pension can be structured into staggered payments to suit your needs or taken in one lump some with no penalty.
– The minimum monthly payment is usually 60 euros per month
– If your circumstances change you can pause the pension
– New limits for 2021 – The maximum annual amount you can put into a pension is 2,000 euros as a physical person – per year (50% of this you can offset against your tax bill)
– If you choose to switch company you can do this with a transfer at any point to another Spanish insurer
– You may have more savings than normal at the end of the year and it is possible to pay a one off payment into the pension at any time.
Why you can not rely on on government pensions:
Planning for your future in this modern age has never been so important. Spain in-particular is changing its rules and requirements for the government pension on a constant basis. It is very important to supplement your government pension to provide a safety net for your retirement.
With Spain’s growing population and national debt it is likely that each individual will be paying more into the government pension and will receive less than has been the case in the past. Although there are European countries with more national debt such as France and Italy. These countries have a higher GDP and so you could say Spain is in a worse position.
In summary the government wants to incentivise the population to take out their own pension and we would advise at least having a PPA plan in place. Ideally once the PPA is in place any extra funds could be put in a savings or investment plan which is guaranteed.