The campaign to attract pension plans this year has been truncated by the recent announcement of the Government of reduce from 8,000 to 2,000 euros the maximum contribution that can be deducted in personal income tax. More than 7.5 million savers, according to the employers’ Inverco and Unespa, will be affected by the measure that the Executive has included in the 2021 General State Budget (PGE) project.
Many savers wonder if it is still worth investing in a pension plan after learning about the Government’s intention to cut the maximum contribution by 75%. “If the new measure comes into force from next year, Obviously it would be the last chance to be able to deduct the maximum allowed so far in the individual plans, both for those who already have one and for those who open their first plan before the end of the year, “says Pablo TellerÃa, in charge of investor relations at the HelpMyCash.com comparator.
Tax treatment
The tax treatment that pension plans currently have and that could have the days numbered is the following: savers who invest in a private pension plan can reduce the tax base on which your personal income tax is calculated by up to 8,000 euros or 30% of income from work and economic activities, the lesser of the two previous amounts.
Thus, for example, a worker who earns 20,000 euros gross per year and contributes 3,000 euros to his plan, could save 674 euros in taxes this year, according to HelpMyCash’s free pension plan tax calculator. However, the annual contribution could be higher; specifically up to 6,000 euros. Of course, although the contributions are exempt from paying taxes, the benefits are taxed, so it is convenient to plan the rescue well.
Will it affect all savers?
The employers of the sector have not been slow to reject the new government measure. Unespa and Inverco have stated in a joint statement that “It will negatively affect the entire Spanish citizenry.”
But will it really hurt everyone? If the limit is finally reduced to 2,000 euros, the equivalent monthly contribution would be 166 euros. “If we take into account that the most frequent salary in Spain is 18,469 gross euros [datos del INE relativos a 2018], which becomes about 15,225 euros net, we have that, allocating 10% of that net salary to the pension plan, a monthly average contributed to the plan of 127 euros comes out “, point out InbestMe sources consulted by HelpMyCash. This is an amount below the deductible limit.
TellerÃa points out that “those people who have higher salaries, then, will have to resort to the occupational pension plan to supplement the maximum deductible amounts.” Precisely, the PGE project for next year foresees an increase in the maximum deductible for occupational pension plans from 8,000 to 10,000 euros.
While it is true that the political snip may make this retirement savings vehicle less attractive, it is not the first time that the limits have been cut and the plans have survived until now. Until 2015, the maximum contributions depended on age: those over 50 could save up to 12,500 euros per year and the rest, up to 10,000. Thereafter, age differences were eliminated and the current limit was imposed.
And if I don’t have any plans, am I in time to start saving?
Yes. It is never too late to save for retirement. The experts of the comparator HelpMyCash.com advise start saving for retirement earlySince the earlier you start, the less effort will have to be made to achieve the same goal.
Opening a pension plan is simple and individuals are still in time to benefit from the current tax treatment until the end of the year. Furthermore, nowadays it is not necessary to choose a specific pension plan, a mission that can be complicated for those who are not used to investing. Automated investment managers, called roboadvisors, allow you to invest in pre-defined plan portfolios with different levels of risk. InbestMe offers up to 11 different portfolios of pension plans that can be contracted over the internet from 250 euros and with commissions much lower than what most banks charge for investing in these products. Each offers a different risk profile to suit the client’s needs.
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