Think about an investment product for your retirement. Pension plans are surely among the first options that come to mind, and it’s no coincidence.
For years they have been the leading tool for retirement and retirement planning. Do you want to know why? That is precisely what we are going to look at in this article, where we will tell you what a pension plan is, how it really works and what its advantages and disadvantages are. So you can decide whether or not it fits into your strategy, or how it can complement your investments.
What is a pension plan?
A pension plan is a long-term investment tool, initially designed for retirement. This is one of the main features of this product, but not the only one.
Another defining feature of pension plans is that you do not invest alone. A plan is a collective pension and investment product that brings together many people’s money to invest it and thereby obtain certain advantages, such as access to professional managers or lower investment costs.
To make this easier to understand, the plan pools the money from many people and invests it all together, similar to an investment fund. In fact, from a technical point of view, the pension plan is the shell of a pension fund, like its packaging. In the end, the plan invests your money in the pension fund, allocating the capital to a well-diversified portfolio of assets.
How does a pension plan work?
Pension plans work in a fairly straightforward way. The first thing you need to know to understand them properly is to be aware of the figures involved in them:
- The person who invests in the plan, or the participant.
- The plan promoter, who is the one that creates the plan to market it.
- The manager , who is in charge of investing the money through the pension fund.
- The person who will receive the money, in other words, the beneficiary. Normally this beneficiary is you, but plans can be created in the name of other people and you can always designate the beneficiary of your choice to collect the money in the event of your death.
With this in mind, the process of investing in a plan is very simple. You choose the one that suits your needs, and you make your contribution, which is limited by law. The fund manager receives that money and invests it according to the plan’s policy. If all goes well, the money in the plan will increase.
Finally, the time will come to recover the money in the pension plan or capitalize the investment. Unlike other products, with a pension plan you will not be able to access your money whenever you want.
Advantages of pension plans
A pension plan is defined by its characteristics and these are closely linked to its advantages. You may have heard about the fiscal advantage of plans when it comes to paying less taxes. But that is only one of their positive features. These are the most important.
- You are able to diversify your portfolio
A pension fund can invest in many assets, from equities to fixed income products. And all for a very low cost: that of one share.
What 100 euros can do through a pension plan, would require thousands of euros to set up if you bought the shares on your own. That is why a pension plan is a diversified product at an affordable price.
- They are managed by professionals
Behind every pension plan and investment fund there is a team of expert investment managers. These professionals are in charge of making your money grow and deciding where, when and how the contributions you make are invested.
- They are safe
- And also very flexible
There are pension plans for all tastes and investment profiles, both the most conservative and the riskiest. In addition to having a choice, you will be able to adapt the pension plan you have taken out to each moment of your life and the risk appropriate to that particular time.
- They allow you to pay less tax and get tax benefits
This product has an interesting tax benefit: the money you invest is subtracted from your tax base in the income tax return.
Source:https://bit.ly/pension-plans-investment-products
