Saving in the medium and long term can be done through a Retirement Savings Plan. Find out what a PPR is, what types there are and what tax advantages they have.
Have you heard about PPR (Retirement Savings Plan), but don’t know what it is? Do you want to start saving in the medium and long term and want to understand how this solution works? know what is PPR and what are the advantages of having one, especially in tax terms.
What is a PPR?
A PPR is a way to save money for retirement, thus guaranteeing an extra amount to compensate for the loss of purchasing power when you stop working. But there are different types of PPR, so it is important to understand which solution is most suitable for you.
As they are a form of medium or long-term savings, you should subscribe to them at the beginning or in the middle of your working life, so that when you retire, you will have considerable value. That is, it is convenient to start saving as soon as possible, thus managing to save more money.
The purpose of the PPR is, therefore, to complement the retirement, with contributions being made by the employee or, in some cases, by the employer.
Reimbursement can be done in several ways: receive the amount you saved at once or periodically, receive a lifetime monthly pension or choose an option that combines two of these forms of payment.
What types of PPR are there?
There are two types of PPR: funds and insurance. The two options have in common the fact that deliveries are made to an entity that will manage them. That is, a pension fund management company or an insurance company.
How do PPR funds work?
PPR funds are pension investment funds in which the subscribed capital is expressed in participation units that have a certain daily value.
Management belongs to asset management companies that have a specific investment policy. Which means that, as with investing in other financial products, there are gains and losses.
There is no guarantee of the invested capital, that is, you can lose what you have saved/invested. However, the profitability of these funds is usually higher than that of insurance.
How does PPR insurance work?
Insurance is the most common type of PPR. In this option, the amount invested is invested by the insurer in an autonomous fund. Profitability is lower than in PPR funds, but there is capital guarantee. That is, you don’t run the risk of losing the money you delivered or what you earned in interest.
However, it is important to confirm before investing: there are funds with a capital guarantee and some PPR insurance, such as unit linked, which are divided into funds that, in turn, do not have guaranteed capital.
What are the tax benefits of PPR?
One of the advantages of PPR are the tax benefits, that is, the possibility of deducting part of the investment you made from the IRS.
The value of annual deliveries is deductible at 20%, but the maximum amount of the deduction varies depending on age:
- Under 35 years old: you can deduct up to 400 euros if you apply 2000 euros in the PPR;
- Between 35 and 50 years old: 350 euros is the maximum deduction ceiling, if 1750 euros apply;
- From 50 years old: you can deduct up to 300 euros, if you apply 1500 euros.
The tax benefits of these Retirement Savings Plans are also available at the time of redemption. Thus, instead of the 28% withholding tax, you will pay a lower rate, which is calculated according to the years you have held the investment:
- 21.5%, if you keep the investment for up to 5 years
- 17.2% if you serve between 5 and 8 years.
- 8.6% after 8 years
And if you want to redeem the PPR?
You can redeem the PPR before reaching retirement age, and early repayment is generally subject to penalties.
Even so, there are cases in which you can redeem your investment without suffering any type of penalty, that is, without having to return the tax benefits you received plus a penalty of 10% for each year that elapses.
According to the law, early redemption without penalty can be done in the following cases:
- Retirement due to old age, either for the subscriber or for the spouse (if the PPR is a common asset);
- Long-term unemployment of the participant or any member of the household;
- Permanent incapacity for work, of the participant or any of the household members, regardless of the cause;
- Serious illness of the participant or any member of his household;
- Death of the participant or death of the spouse (if the PPR is a common asset);
- From the age of 60 of the participant or spouse (if the PPR is a common asset);
- Attendance or admission of the participant or any of the members of his/her household in the course of vocational or higher education, when generating expenses in the respective year;
- Payment of installments under mortgage-backed credit agreements on property intended for the participant’s permanent residence.
Early redemption to pay home loan
In 2023, due to the rise in mortgage interest rates, an exceptional regime for the early redemption of the PPR will be in force. The purpose of this measure is to support families who, because of this increase, may be experiencing difficulties in paying the loan.
So, according to the Law No. 19/2022, it will be possible to reimburse part of the amount invested for the payment of mortgage loan installments. The monthly redemption limit is equivalent to the Social Support Index (IAS), which in 2023 has a value of 480.43 euros??
How to choose a PPR?
The best PPR for you may not be the same one that a family member or friend has signed up for. Therefore, it is important to understand if you are looking for profitability or if you want an option that, although it yields less, guarantees the invested capital. Before deciding, compare several options and run simulations.
If you have already subscribed, but want to change, you always have the possibility to transfer your PPR to another more advantageous solution. Soon the so-called European PPR will arrive, which is another alternative for those who want to save for retirement.