The Government is on the way to making the tax cut on pension plans a reality, one of the fears that has hovered over the fund sector and investors themselves in recent months, since tax savings have been so far one of the biggest attractions of this type of product. The Executive has modified the limits of maximum contributions to these plans and has lowered the level of contribution that can be deducted in the IPRF for individuals from 8,000 to 2,000 euros, as stated in the draft General State Budgets for 2021arriving this Wednesday at the Congress of Deputies.
The measure has caused disagreement and discomfort among employers Inverco (collective investment institutions) and Unespa (insurance), with a strong link to this investment vehicle. Both have expressed their opposition to the measure and have warned that the modification, “if approved, will negatively affect the entire Spanish citizenry.”
The legislative proposal prepared by the Government reduction of contribution limits from 8,000 euros to 2,000 euros to individual social security systems, while raises the limit for employment systems from 8,000 euros to 10,000 euros. The Executive expects to save 580 million euros in 2022 with this change, which, according to the calculations of both organizations, will have repercussions for some 8.5 million people. “There are more than 7.5 million participants in individual pension plans and almost a million insured in insured pension plans (PPA) who are going to be directly and immediately affected by the measure,” it states a note issued jointly by Inverco and Unespa.
“It will not achieve the desired effects. On the other hand, the measures contemplated are going to harm the development of complementary social security in Spain, with the consequent harm to society as a whole and the national economy,” he adds. the notice.
Employers justify their discontent in five reasons ranging from the very structure of the Spanish labor market to the irregularity of income derived from work, through the complementarity of employment and individual systems, international experience and the lack of a real fiscal cost of the tax scheme of the social forecasting.
For associations, it must be made viable that all this employed population that is outside the corporate social security plan can access individual pension systems “under the same conditions and requirements as any other worker”.
From the point of view of the Public Treasury, the associations recalled that the taxation of social security systems involves “a mere deferral” of taxationIn other words, its tax treatment does not generate benefits. The reduction in the tax base of the Personal Income Tax (IRPF) of the contributions is compensated later with the taxation as work performance of the benefits.
How much can you save?
Tax exemptions are one of the reasons – perhaps the most important one – why many people decided to launch into a pension plan. As explained from the financial products comparator HelpMyCash, the money that is contributed annually to these products is exempt from paying personal income tax, that is, investing in a pension plan allows you to save taxes by reducing the amount of money on which income tax is calculated.
Until now, and waiting for the approval of the change announced this Tuesday by the Minister of Finance and Government Spokesperson, MarÃa Jesús Montero, the maximum annual contribution is 8,000 euros or 30% of the annual income from work.
In a practical example, HelpMyCash starts from an annual gross income of 20,000 euros to calculate how much an investor who contracts a plan could save under current conditions. The maximum that person could invest would be 6,000 euros each year, since it will be the maximum that could be deducted (30% of income from work and economic activities).
“With a salary of 20,000 euros, about 2,510 euros would be paid in personal income tax. However, investing 3,000 euros in a pension plan, the personal income tax that would save would be 674 euros, although it must be taken into account that this figure could change according to the other variables that are taken into account in the income statement “, they clarify. “This tax saving would rise to 3,600 euros if it could invest 8,000 euros paying a marginal personal income tax of 45%”, they add.
By recovering the savings invested in the pension plan, they will be taxed as earned income. “This means that the money we take out of the plan will be added to the rest of the income that the person obtains that year, such as the retirement pension, and will be subject to the payment of personal income tax,” they explain from HelpMyCash.
Increase the tax on insurance premiums
In the case of Unespa, the organization has also shown its discomfort with another of the changes included in the budget project and that has to do with the rise from 6% to 8% of the type of tax on Insurance Premiums.
In this case, the insurance employer warns that if this change is finally approved, the measure “will negatively affect Spanish families and companies”, as it is an external surcharge to the insurance premium. This “substantial” modification of the insurance tax treatment will also indirectly impact the insurance sector, “an industry that represents 5% of GDP and provides direct employment to more than 50,000 workers and with which more than 50,000 workers collaborate. There are 565,000 professionals “, recalls the organization.
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