How does a private pension plan work?

Take out a private complement to your Social Security pension

A private pension plan can be an interesting complement to your future state retirement pension. In addition, this form of saving for the future will not only generate interest, but will also enable you to deduct an amount of money each year on your annual tax return.

However, the advantages of this type of product go hand in hand with certain aspects that you must consider before signing up for a plan. Don't overlook important issues such as your risk profile or your ability to save. It is essential to consider these aspects to find a product you can afford.

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Types of pension plans

There are three types of pension plan that differ according to who takes them out: individual, associated and employment.

  • Individual plans are taken out by an individual with a financial institution on their own initiative.
  • Associated plans are usually taken out by groups, unions or other associations, and therefore there is a direct connection with a group.
  • Employment plans are arranged by a company for its employees.

In all three cases, the aim of a private pension plan is to save money for the future. The final resulting capital will depend on the contributions you have made and the way in which the plan or plans have been managed over the years.

Risk and operation of a private pension plan

There are different pension plans depending on the risk that the type of participant assumes. The risk that a participant assumes is directly related to the remaining time frame until retirement. There are three easily recognizable risk profiles: conservative, moderate and resolute.

Investors with a conservative profile avoid taking risks because they are close to retirement and their priority is to preserve the accumulated capital over the years. A "conservative" product aims to generate very moderate returns based on avoiding risks or incurring very reduced risks. Priority is given to conservative fixed-income assets, such as bonds, treasury bills, commercial papers, etc., and only a very small (sometimes non-existent) portion is dedicated to equity assets.

These plans include BBVA Plan Multiactivo Conservador, PPI, and BBVA Plan Renta Renta Fija Internacional Flexible 0-3, PPI, which can be accessed with a minimum investment of €30.05. In these plans, equity investments oscillate between 0% and 30% of the capital, while the remaining capital is subjected to public and private fixed income. The profitability of these products, although favorable, is far from the levels reached by other more determined plans. 

The moderate profile is for savers that, although they may be able to assume certain risks, cannot put everything into highly-volatile assets. In terms of saving for retirement, these people tend to be middle-aged savers with approximately 15 years until retirement. In mixed pension plans, the combination of fixed income and variable income is more balanced: the latter has more weight.

Products that fall under this option are BBVA Plan Multiactivo Moderado, PPI or BBVA Plan Fixed-Income Internacional Flexible. In these plans, the BBVA Asset Management team invests and manages the capital to obtain the maximum possible profitability. 

The third profile is that of the resolute investor who, due to the time frame until the saving objective, can take risks in search of greater returns. In terms of saving for retirement, these are individuals who have recently joined the labor market and have several decades ahead of them before retiring. Variable income, currencies and emerging fixed income predominate in this type of investment.

The risks assumed with this type of plan depend on the evolution of the markets, the possible change in exchange rates in investments in international currencies, and even the possible deterioration of the credit quality of the invested assets. However, the profitability of these products reach levels that are not obtained by moderate or conservative pension plans.

Technical aspects of a pension plan: recovery and taxation

Pension plans have certain limitations when it comes to accessing the saved money, but they also offer interesting tax relief. For this reason, to know how a private pension plan works, you must fully understand these two aspects.

You can only use the money invested in a plan (either in a single payment or periodic annuity) in the event of retirement, disability, severe or high dependency, or death. Although there are other exceptional cases in which you can recover the invested money (unemployment, serious illness or foreclosure of the main residence), remember that these types of extraordinary circumstances can have a negative impact on income. From January 1, 2025, it will be possible to redeem shares that are a minimum of 10 years old.

Contributions to a pension plan are used to obtain tax relief, as the money you put into the plan is deducted from the general part of the personal income tax (IRPF) base (the annual limits established by the law of each national territory). When redeeming the plan, the benefits are taxed as earned income. In order to optimize the tax invoice, it is crucial to properly assess the type of redemption (it is important to prioritize redemption through occasional income over single redemption in the form of capital).

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Savings from a pension plan are an excellent way to ensure you are financially stable after retirement. Nevertheless, it is important for you to know which type of plan best suits your profile. You can find this out thanks to a tool that you will find at

In addition to comparison tables and detailed product descriptions, on our website you will find a useful plan finder with over 100 different products and an essential pension plan calculator.

In this calculator, indicating your age, your salary, the number of years you have made social security contributions for and the amount you have accumulated in other pension plans, you can get an estimate of the average state pension you will receive from the Social Security institute. If you wish to maintain your current income, you can choose different plans based on the risk that you wish to assume, and start saving for your retirement right from the very first monthly contribution.

For more information, simply click on "I want to know more" and discover at how to guarantee a retirement without financial problems or strains.

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