Inverco advocates taking advantage of the multiplier effect that can be generated by the reinvestment of the deductions that enable the contributions
The withdrawal of investors from the individual pension scheme system is a fact, in the midst of the government’s offensive to secure support that will enable it to implement its proposal to promote occupational pension schemes.
The Executive’s decision to limit contributions to 1,500 euros per year has already resulted in net outflows from individual pension plans approaching 270 million euros until April. However, there are still people who bet on this retirement savings formula, although often this is only because it is mandatory to contract it as a product linked to another product, for example the mortgage.
For all of them, the employers of the Inverco sector remind that there is a formula to make the most of the exemption allowed by the individual system plans on the taxable basis of personal income tax for the contributions of the previous year (1,500 euros in individual plans and 4,250 in pension plans) employment, as long as it does not exceed the company contribution).
Of Inverco, they state that “just the tax deferral for 20, 30 or 40 years is a very relevant tax advantage, since, although the distributions are taxed at the marginal personal income tax rate, they are received during retirement, a stage where the taxes are generally lower than those of the active phase.
This tax deferral makes it possible to make the tax credits for each year during all those years profitable and to increase the yields through the effect generated by the so-called “compound interest”, the interest that accumulates the proceeds on past yields. That is, it is the interest that is added to the initial capital, creating new interest and a multiplier effect (because the interest applied at the end of each period is applied to an ever-increasing capital base).
As calculated by the employers, the annual tax savings (in the form of a lower payment in the tax return or a higher return), reinvested in their own or in another pension scheme, ensures that the amount accrued at the time of retirement is 40% higher .
Inverco gives an example for a participant who contributes 1,000 euros per year to his pension plan and builds up capital of 26,870 euros after 20 years if he does not reinvest the deductions every year. With this reinvestment of tax savings, the final accumulated balance would be EUR 37,326.
It should be noted that the example was created on the basis of an annual return of 3% of the product, taking into account that the average return of 25-year pension plans in Spain is 3.1%. For the simulation, an employee is chosen with a taxable basis between 20,200 and 35,200 euros, which corresponds to a marginal rate of 30%.
Source: La Verdad
I’m Wayne Wickman, a professional journalist and author for Today Times Live. My specialty is covering global news and current events, offering readers a unique perspective on the world’s most pressing issues. I’m passionate about storytelling and helping people stay informed on the goings-on of our planet.
