Reinvesting pension plans’ tax deductions may rise returns by 40%
The Spanish asset management body industry Inverco assures that the reinvestment of the annual pension plans’ tax deductions could provide a 40% increase in the returns amounted at the date of retirement.
Currently, pension plans in Spain enable to reduce – from the IRPF base – the contributions made during the previous year with a maximum of €8,000 or 30% of the net income from work.
Tax deductions generated every year and reinvested in the pension plan itself or in another plan, would increase the accumulated amount by 40% by the time of retirement.
“Although the benefits are taxed at the marginal rate of income tax, they are received during retirement, a phase in which taxes are generally lower than those paid during the working life,” says Inverco.
Therefore, an investor making an annual contribution of €1,000 (less than €3 a day) would accumulate a capital of €26,870 in 20 years without reinvesting the annual tax deductions, while reinvesting them in a pension plan the final accumulated balance would grow by 40% amounting to €37,326.
With a contribution of €2,000 annually (over €5 a day) the amount accumulated in 40 years of contributions could reach some €60,799.