Are private pensions in Spain really worth it??
Nov 21st 2008 | 7:50 pm
#16
BE Forum Addict
Joined: Jan 2008
Posts: 2,624
From: The Charente - still smiling.
Re: Are private pensions in Spain really worth it??
Fred,
As one of the doubtless hundreds reading this thread with considerable interest:-
Thank you.
As one of the doubtless hundreds reading this thread with considerable interest:-
Thank you.
Nov 22nd 2008 | 12:17 am
#17
RETIRED ;-))
Joined: Jul 2003
Posts: 20,156
From: Benalmadena Pueblo,Spain
Nov 22nd 2008 | 4:14 am
#18
Forum Regular
Joined: Jan 2005
Posts: 86
From: west sussex and ayamonte,spain
Re: Are private pensions in Spain really worth it??
Ok, so let's see if i am beginning to get this now.
I would be foolish to take my pension as a lump sum when I retire because the whole amount would be taxable at the highest IRPF rate (assuming there is a decent amount of money in the fund). That would be 43%ish, almost half of the fund would be lost to the taxman.
Taking it as an annuity is the right way to go. Only 24% (depending on age) would be taxable at the low rate of 18%.
Now this leads me on to my next question.....
I understand that I have to choose over what term my pension is paid out...5 years, 10years, 20 years, etc.
Does this have any implications on the amount of tax I would have to pay??
BTW - all of this advice is much appreciated. I took out the pension plan a few years ago because, y'know, I figured that has to be a good thing to do....right? But I really had no understanding of the mechanics of it at all.
I would be foolish to take my pension as a lump sum when I retire because the whole amount would be taxable at the highest IRPF rate (assuming there is a decent amount of money in the fund). That would be 43%ish, almost half of the fund would be lost to the taxman.
Taking it as an annuity is the right way to go. Only 24% (depending on age) would be taxable at the low rate of 18%.
Now this leads me on to my next question.....
I understand that I have to choose over what term my pension is paid out...5 years, 10years, 20 years, etc.
Does this have any implications on the amount of tax I would have to pay??
BTW - all of this advice is much appreciated. I took out the pension plan a few years ago because, y'know, I figured that has to be a good thing to do....right? But I really had no understanding of the mechanics of it at all.
I have assumed that we are talking about "planes de pensiones", the annual contributions for which give rise to a reduction in taxable income of up to Euros 10,000 per year from earnings (for indivuduals of less than 50 years) and which (in normal circumstances) can only be liquidated on reaching the official retirement age of 65.
As I understand it, such plans when liquidated, as a lump sum or over a period of years in the form of an annuity, give rise to income which is treated as part of one's earned income (renta de trabajo) and tax is paid thereon accordingly.
Another question is to convert the lump sum derived from the original plan into a separate completely new annuity plan, which clearly has different fiscal treatment. But in order to do this, one must first cash in the original plan, suffer the income tax thereon and with the net proceeds purchase the new annuity plan.
Re your new question about the number of years over which you decide to receive a pension from the original plan, clearly the lower the amount of pension received each year equates with a potentially lower tax bracket to be used.
Hope this helps.
iant
Nov 22nd 2008 | 10:53 am
#19
Thread Starter
BE Forum Addict
Joined: Jun 2006
Posts: 1,101
Re: Are private pensions in Spain really worth it??
Hi Ian
Don't worry, we haven't been talking at crossed purposes. I have a "plan de pensión" from INGDirect which they call Plan Ibex 35. It's been running for about 5/6 years and has another 30 to go until I retire. I have been able to offset my contributions to this plan against my earnings each year when I do my RENTA, and I cannot access this money until I reach retirement age.
I think I will have to speak to ING to clarify whether I could get an annuity (which I think means receiving payments until your death?), or whether I have to choose a fixed period of time (5years, 10 years, etc) over which I receive the payments. I seem to remember that when I took the plan out they told me it was the latter.
Don't worry, we haven't been talking at crossed purposes. I have a "plan de pensión" from INGDirect which they call Plan Ibex 35. It's been running for about 5/6 years and has another 30 to go until I retire. I have been able to offset my contributions to this plan against my earnings each year when I do my RENTA, and I cannot access this money until I reach retirement age.
I think I will have to speak to ING to clarify whether I could get an annuity (which I think means receiving payments until your death?), or whether I have to choose a fixed period of time (5years, 10 years, etc) over which I receive the payments. I seem to remember that when I took the plan out they told me it was the latter.
