Which are the best pension plans

We'll show you the pension plans with the best conditions for every situation

The current pension system cannot guarantee that we will be able to maintain our same standard of living after reaching retirement age. A pension plan can therefore allow you to compensate for the loss of purchasing power you may experience after you retire.

The main advantage offered by a pension plan is tax-related. Contributions made into your pension plan are deducted from the assessment base for your personal income tax (IRPF). This reduction has limits established in the following amounts:

- The amount of the contributions made, limited to €8,000.

- 30% of net income from work received during the financial year.

When you redeem your plan, or in other words, when you recover the money accumulated in it as well as any possible returns generated, the money you receive is taxed as earned income. In any case, it must be remembered that the ability to delay this taxation until retirement age provides a very attractive tax advantage. In other words, you are benefiting from a tax deferment that will have a very advantageous effect, especially if you reinvest the amounts returned by the tax agency.

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Which plan is best for me?

Once you have decided to open a pension plan, your bank will have to manage the money that you will be contributing periodically, so that it will be there for you to enjoy once you have reached the age of retirement. The different ways of managing your plan are practically unlimited. The banks invest in a great diversity of assets, which can be classified into the following divisions based on their characteristics:

- Fixed-income: Your money is invested in treasury bonds, corporate bonds, term deposits, promissory notes, etc. The returns are usually smaller, but so are the risks involved. This type of plan is ideal for conservative profiles or older savers who do not want to take risks. The Assured plans can also be included within this category. With these, the account holder will always get the assured level of returns, regardless of changes in the market.

- Equities: Your money is invested in variable-income assets as stocks, warrants, etc. Offer higher returns, although your risk level is high. Those with a higher-risk profile usually choose this plan.

- Balanced: These combine fixed-income assets and equities so that you can benefit from the best of both worlds. The risk level will depend upon the percentage of equities included in the portfolio. This type of plan is a good fit for moderate savers with a more dynamic profile.

Pension plans can also be categorized based upon who is promoting the plan and who the account holders are:

- Individual: These are promoted by financial institutions and can be subscribed to by any individual who is prepared to periodically contribute a specific amount.

- Employment: These are promoted by companies for their employees. Both parties can make contributions, or just the company.

- Associations: These are promoted by associations or other groups for their members or partners.

Most experts agree that when our retirement age is still on the distant horizon, the best thing to have is a pension plan focused on variable-income assets, since these offer higher returns, and also because you still have some room to invest in higher-risk assets since you will still have some time to maneuver later on. On the other hand, as retirement draws closer the ideal strategy is to focus on fixed-income assets, since you will not want any big surprises in relation to your capital.

For anyone who wants to avoid the trouble of changing the composition of his or her pension plan, there are the so-called lifecycle pension plans. You will only have to choose a plan with maturity date that is the same as (or close to) your date of retirement, since management of the plan will be adapted to the risk needs associated with your age.

When I can redeem my pension plan?

You cannot recover the contributions you have made into your pension plan until you have reached the ordinary retirement age. Once that date has arrived, you can choose a form of recovering the money, whether as income (in other words, by being paid an amount with a periodicity you establish), or in the form of capital, which means repayment of all of your accumulated rights at a single time. It is also possible to carry out these redemptions in a mixed manner (as a combination of income and capital), or with free distribution (without a specific frequency).

It may also be possible to redeem your plan prior to your legal retirement age, as long as one of the following cases is involved:

- Death of the account holder. Both during the period when contributions are being made and while benefits are being collected.

- Full, permanent inability to work, or severe disability.

- Verified severe illness, which fully or partially limits the ability to work.

- Long-term unemployment: must be in a legal situation of unemployment, must be registered as a job-seeker, and must have exhausted (or lack the right to collect) unemployment benefits.

- Situations of high dependency or severe dependency.

- Process of eviction from the primary residence.

- Starting on January 1, 2025, it will be possible to redeem contributions with a minimum age of 10 years.

When is the ideal time to open a pension plan?

As a product linked to our retirement, it is easy to think about putting it off until retirement age is coming closer -- 65 years and 4 months -- but nothing could be further from the truth. The sooner you begin making contributions to a pension plan the easier it is, and you will have more time to generate interest on your savings.

It is worth remembering that a pension plan is a mixed formula of savings and investment. You are saving for the future and investing at the same time, since the money you are contributing will be generating interest. That is why it is so important to start with a pension plan as soon as possible. If you decide to open a pension plan at age 35 instead of at age 55, you will have to contribute lower amounts. You will also benefit more from the returns obtained, since these are re-capitalized. You will continue to accumulate more capital and more interest.

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What other elements must be taken into account?

We must remember to mention the commissions, which are another fundamental aspect. Before choosing a pension plan it is important to study the commissions that will be applied, since these can act against the returns obtained. There are two types of commission: one for management, which has a maximum yearly amount of 1.5% of the value of the accounts, and the depositary service fee, which has a maximum yearly amount of 0.25% of the value of the accounts.

It is also worth mentioning those plans where the costs are justified by their associated returns, since some plans may have high commissions but higher returns as well. The account holder ends up earning more each year and the higher commissions are not worth worrying about.

The staff at your BBVA branch will be happy to help you plan your future, and they will advise you on the plan that best suits your needs.

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