WPO Image

Why It Is So Important To Invest In Private Pension

Do you know how a private pension works? How important is it? What types are available? To answer these and other questions about the topic, we’ve prepared this post for you.

How does private pension work?

Private pension is a medium to long-term investment fund that aims to ensure the reserve of values, whether for future purposes or to complement official retirement, which is often insufficient to meet needs and ensure quality of life of the retiree.

In this type of investment, the contractor pays a certain amount to the insurer and, after a given period, he can redeem both the amounts invested and his income, respecting, of course, the contract signed .

The amounts and frequency of payments are determined by the contractor’s profile. That is, by the amount that is intended to accumulate and by the investor’s financial availability. Discharges are usually made monthly. However, there are quarterly, semi-annual, annual and even one-off plans. Furthermore, redemption, taxation and investment rates are variable.

What are the types of private pension?

Free Benefit Generator Life (VGBL)

It is the most suitable plan for people who do not have high earnings, who declare their Income Tax (IR) directly at source or who wish to invest more than 12% of their annual gross income. In this modality, the amount invested is not deducted from the IR, however, when the contracting party makes the redemption, taxes are levied only on income.

Free Benefit Generating Plan (PGBL)

It is the most suitable form of private pension for those with high income, since the amounts invested may be deducted from income tax if they do not exceed 12% of the contractor’s annual gross earnings. Thus, taxes will only be paid when the invested amount is withdrawn.

What are the advantages?

Private pension plans offer numerous benefits. Among them, we can highlight:

  • The financial reserve: the commitment to allocate part of the income to the investment fund helps the contractor to have more discipline to save, especially because the amounts are not easily collected;
  • Flexible taxation: the contractor can choose the progressive or regressive model. In the first hypothesis, the IR rate is 15%. In the regressive period, after a period of investment (10 years), the rate reaches 10%;
  • Portability: the contracting party has the possibility to change the plan and even the insurance company , as long as they maintain the taxation regime and the chosen type of investment (for example, if it is VGBL, it cannot change to PGBL).

As you can see, having a private pension means planning financially for the future. It is worth remembering that, to ensure the success of the investment, it is essential to pay attention to the specifics of the plans and, of course, opt for a reliable insurance company recognized by the market.

Yvestan Guy