Pension plan: operation, taxation and alternative

Plan de pensiones The end of working life in Spain is something that worries many workers because they fear reaching retirement without a good pension or without enough to provide them with the quality of life they deserve. For this reason, investment products that are increasing their volumes are pension plans.

To facilitate your understanding, in this post we will try to shed the aspects considered most important as is its operation, taxation …

In addition, we will finally explain a star alternative, crowdlending , to take advantage of your money from now and be able to benefit from your monthly profits.

 

Pension plans

Image result for pension planPension plans are financial products intended for savings or private social security instruments aimed at the retirement of workers . The purpose is that the investor makes periodic contributions to dispose, later and in addition to certain pensions, of a capital or an income.

It is the ideal way to save with a view to retirement because of the advantages that investors find there (tax advantages …).

This product is supervised and inspected by the General Directorate of Insurance and Pension Funds that reports to the Ministry of Economy .

Operation of the pension plan

The operation of the pension plan is simple, when an investor decides to contract a pension plan begins with periodic contributions. The contributions are flexible with regard to three factors:

  • Amount (within limits)
  • Periodicity (monthly, quarterly, semi-annual …)
  • Mode (interrupted or uninterrupted)

The flexibility in them makes it easier for individuals to design their “own plan” . These contributions are invested by the plan’s managers based on previously established requirements.

To rescue the money from the pension plan, a series of circumstances must be met:

  1. Retirement of the plan holder, Social Security.
  2. Death during the period of realization of contributions as when charged.
  3. Prolonged detention more than 12 months subject to requirements.
  4. Total work disability , permanent for all work or usual.
  5. Great disability
  6. And other special causes (serious illness, home eviction …)

If any of these situations occur, the owner can decide to redeem the pension plan and with it the way to recover it :

  • Income: periodically receives an amount.
  • Sole capital: It is charged only once.
  • Mixed: Part in the form of income and part in the form of capital.
  • At disposal: Receive the funds in the form of income but without a regular periodicity (subject to requirements).

 

Taxation of pension plans

Taxation of pension plans

Taxation is one of the issues that most attracts investors when they decide to hire a pension plan as it is a strong advantage over other savings products.

The taxation of the contributions to the plan reduces the tax payment or the IRPF base and with this the amount to be returned by the Treasury can be increased.

The fiscal outlook was changed in 2015, with the changes taking effect in 2016, incorporating new developments focused mainly on contribution rates. Let’s see below what they are.

Limits of contributions to the pension plan:

The reduction for contributions is limited to deduct the lower of the following amounts: 8,000 euros or 30% of income from work and economic activities regardless of the age of the contractor. In the previous law differentiated age and quantities.

If you obtain income of less than 8,000 euros per year, there is a limit of 2,500 euros for the contribution limit in favor of the spouse.

 

Rescue of the pension plan

The taxation of the ransom is a process contrary to that of the contributions. Whatever the reason why you are willing to redeem the plan and regardless of the form chosen for it, the benefits are taxed as Earnings from Work .

If in the contributions the tax payment was reduced, at the time of receiving the benefit from the rescue, the general tax base rises as taxes are paid for everything saved and not only for the benefits.

 

In the taxable base of savings, the sections of the IRPF are:

Depending on the manner chosen to rescue the plan and if contributions have been made before December 31, 2006, the tax rates are reduced, leaving:

  1. Rescue in the form of income: the tax rates are reduced to be in the range of 20 – 47% in 2015 and 19 – 45% from 2016; depending on the autonomous community, it will be a percentage or another.
  2. Rescue in the form of capital: Contributions until December 31, 2006, are taxed 60% if they meet pre-established requirements.

The transitional regime by which a reduction of 40% in the rescue is applied in the form of capital contributions prior to 12/31/2006, remains after the reform.

The rest, as of January 1, 2007, do not have any fiscal benefit when it is rescued independently of the form chosen for it.

If you want to know more information, you will find it in the Law of Pension Plans and Funds.

 

Crowdlending as an alternative to the pension plan

Image result for crowdlendingCrowdlending is a financial activity that directly connects investment and financing and that can report those extra or complementary income to your salary, pension in a comfortable way and from now on!

The taxation of crowdlending is simpler than that of a pension plan. The benefits will be taxed as income from movable capital and the retention will be a single percentage.

In addition, the benefits of the investments you make in crowdlending platforms are acquired every month without the need to wait years to rescue the money invested, as is the case with pension plans.

If you want to know more about crowdlending and its investments, download this Crowdlending Investment Guide that will solve any doubt.

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Does your house impoverish you?

Image result for house financesTo be impoverished by our house is not pleasant. This means that you can not afford the house in which you live and probably rely on credit to stay afloat, therefore, that you accumulate even more debts that you can not repay. You see what it means to be impoverished by his house is not a good thing. There is, however, light at the end of the tunnel: you have full control of your finances and you can change your situation. We want you to own a big house, but do not want you to borrow more than you can pay back. So let’s take a look at what being impoverished by his house really means and how to prevent or fix such a situation.

How do you know if your house is depleting you?

 

As mentioned above, being impoverished by one’s house means that you can not pay for the house in which you live. This may have a different meaning for everyone, but if one or more of the following points to your current situation, it may be time to re-evaluate your living conditions.

  • Do you have large amounts due on multiple credit cards?
  • Do you rely heavily on your credit cards to pay for necessities like groceries?
  • Have you given up family vacations or other travel opportunities because you have to make a mortgage payment?
  • Do you have to restrict and save for months to make payments for your property or school tax?
  • Do you spend more than 30-35% of your income on housing?
  • Are you constantly concerned about the cost of the house in which you live?

Once again, everyone’s financial situation is different, so it’s important to evaluate yours according to your problems and where you want to go.

Main reasons to be impoverished by his house

Main reasons to be impoverished by his house

 

Buying a house that is too expensive is certainly the most common reason people get poorer, but there are many other reasons as well. Let’s look at some of these reasons and how they can be solved or avoided.

Let your lender decide how much mortgage you can have

This goes hand in hand with buying a house that is too expensive, but it’s important to remember it. When you apply for a mortgage, you are approved for a certain amount of money, but there is no rule that says you have to buy a home that uses all of your mortgage. If you have a stable job with a high income or are a two-income family, the chances of being approved for a high mortgage are great. Receiving an amount from the bank does not mean that you have to spend it all. Decide on a budget that you can afford and then look for a house that fits that budget. Buying a $ 500,000 home simply because you’ve been approved for a $ 500,000 loan is not a good idea.

Loss of employment or income reduction

Nobody wants to lose their job but it happens. So, when deciding to buy a house, you should take into consideration whether or not you would be able to live there if you lost your job. Unfortunately, we can not predict the future, but we can prepare for it. Make sure you have enough savings to survive for at least a few months, allowing you to continue making your mortgage payments while looking for a new job.

No emergency or savings fund

Living in a house is expensive, no matter how you go about it. Apart from your mortgage payments, there are many other expenses that you should consider. Having an emergency fund will help you deal with unforeseen expenses.

Too much consumer debt

If you already have a significant amount of consumer debt before taking a mortgage, you are lining up for a seriously unstable financial future. Unfortunately, you would become considerably poorer if all your disposable income went towards the repayment of these debts. To solve the problem, you must consider paying your debts before buying a house. Maybe that would change your goals, but buying a house when the rest of the finances are in order is a much better option.

How to avoid getting poor with your house

How to avoid getting poor with your house

 

The logical answer to this question would obviously be not to buy a house. We understand that it’s easier said than done, and often you can not even know how much you can afford for a home. Here are some important tips to avoid getting poorer when you buy a house:

  • The Government of Canada suggests that you should not spend more than 30% of your salary on housing. The first thing is to understand what represents 30% of your income actually. (PS 30% is good, but aiming lower to start is even better)
  • Then understand what your housing costs will really be. Indeed, as an index, these are always higher than your mortgage payment. Think about property taxes and school taxes, public services, lawn care, emergencies, repairs and of course, your mortgage payments.
  • Then you need to know how much you can afford to add to your monthly budget. Let’s say you have decided that you can afford to allocate $ 3,000 of your monthly budget to your housing costs. This means that everything mentioned in the list above must arrive at $ 3000 or less every month. Do not even think of homes that would be outside your price range.
  • You will also need to save for one-time costs related to the move. This may include a down payment, closing costs, moving expenses and possibly repairs that must be made before moving in.
  • It would also be nice to consider all other costs that might not fall into the housing category. Car payments or public transit fees, gas, auto insurance, groceries, health care, cellular bills etc.
  • Try living with your new budget before buying a house. This will allow you to get used to living on a tighter budget but will give you time to adjust as needed. The most important thing to remember is that budgets, revenues and debts are all different. While the government suggests 30% of your income for housing and ensuring you always have a good financial situation, we are not all able to follow this advice. Owning a house is expensive and if you want to stay afloat, you need to adjust your budget and savings to suit your situation.

 

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What health insurance do I choose, with or without a copayment?

Image result for health insuranceMedical insurance is undoubtedly one of the most important coverage products to be hired to cover present and future needs, not only our own, but also those of our entire family. A “universal” product but offering a long series of possibilities for benefits and hiring.

The analysis of all of them is fundamental, it is not a question of paying too much, nor of falling short of coverage, but of adapting our needs to the most appropriate product. This “study” we must do from the beginning, from the moment we are going to hire our health insurance, because then we will decide variables that will influence not only the coverage of the product as in the cost of it, one of these is If we opt for copayment or no copayment.

Factors to consider

The copayment consists of a small price, which the insured pays at the time of receiving medical assistance. In some cases this amount is variable and is related to the medical service provided. For example, they charge less for assistance to a general medicine or pediatrician than a specialist. The same usually happens with diagnostic tests with clear differences between the cost of the “simplest” such as analysis or radiographs to more complex ones such as an MRI. This co-payment modality makes it very difficult to control the expense that we would incur if we go to the doctor or perform a test. Therefore, the modalities of linear co-payment like those offered by Aegon (we pay the same for each medical assistance regardless of the doctor we visit or prove that we perform) makes it easier for us to know month after month what our total expenditure will be.

In exchange for making these small payments for medical assistance we will get a savings in the periodic disbursement we made for our insurance premium, that is, we will have a “fixed” part that we will pay for, whether we use the service and another variable that will depend on the assistance we have over time (usually monthly).

Calculate the best economic option

Image result for calculate mind

This is the most important point, we a priori get a savings with the co-payment option, but we would only achieve it if we did not visit the doctor frequently. A priori, we do not know if we are going to have a long illness that forces us to do so, but if we have circumstances that can give us some clue. For example, if we have young children, emergencies or regular visits to the pediatrician are usually important. For example, if we think about having children, we know that there are many frequent visits on the horizon with a large number of medical tests and the co-payment is not so important.

The three possibilities of co-payment that Aegon offers us (without co-payment, linear co-payment of 5 euros or linear co-payment of 10 euros) allow us to have a full range of possibilities to adapt them to our personal circumstances. If we go – or rather, we hope – continuous medical assistance or prefer to always know what we are going to pay, without surprises, the best option in the medium term would be without a copayment. For a medium assistance, discontinuous in time the best choice would be the co-payment of 5 euros. Finally, if we believe that we are going to go to the doctor very little and we choose to contract a health insurance exclusively for the support and security we get, we will choose the highest copay of 10 euros, which guarantees a lower fixed premium. But in all cases, the same security and protection.

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