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Financial Dictionary - Insured Pension Plan (Plan de Previsión Asegurado)

Insured Pension Plan (Plan de Previsión Asegurado)

An insured pension plan (plan de previsión asegurado or PPA) is an individual long-term insurance policy there to top up our state pension under the Social Security scheme.  

When we take out a PPA, we sign an insurance policy that has the usual features of a policy: policyholder and the insured or beneficiary, who will be the same person, except in the event of the death of the insured, for which circumstance the insured must name a beneficiary.

The vested rights under this plan may be moved to other insured pension schemes, whether to other pension plans, or to retirement schemes. This option also exists in the case of pension plans. 

Contributions 

An insured pension plan (plan de pensiones asegurado, or PPA) offers the sametax advantages as a "normal" pension plan. In other words, all contributions made to the plan are tax deductible, subject to an annual limit of 30% of the net income from work and economic activities, and capped at €8,000.  These limits may be adjusted in certain specific situations, such as where the spouse receives income of less than €8,000.

In this case, the contributions made in favour of the spouse may be limited to €2,500 per year. 

Meanwhile, people with a disability of 65% or higher may deduct up to €24,250 for tax purposes. These contributions may be made by family members up to the third degree, and up to a maximum of €10,000, provided that they do not exceed the global limit of €24,250.

Redemption

Pension plans are typically redeemed upon retirement, though may also be redeemed upon the occurrence of the following contingencies:

Upon retirement of the policyholder/insured.

In the event of incapacity for work.

If the subject becomes heavily dependent on others.

In the event of serious illness.

In the event of long-term unemployment If the subject is evicted from their home. 

Upon the death of the holder once 10 years have elapsed from the first contribution (provided that this contribution was made after January 2015, the date on which this change in the regulations came into force).   

When the plan is redeemed, it will be taxed as earned income.  

Difference between insured pensions plans (planes de pension asegurados, or PPAs) and regular pension plans (planes de pensión) 

While there are some differences, they also have a lot in common and are mutually compatible, meaning it is possible to take out both products and make contributions to each of them as we see fit.   

Let's take a closer look at some key differences:

Although they share the same objective of saving for retirement, they are two distinct products. The main difference is that a PPA is a form of insurance, meaning it offers guaranteed returns.

Pension plans, on the other hand, are an investment product and are therefore pegged to the performance of the assets in which they invest.  

The two products are marketed and sold by different entities. As an insurance product, PPAs are marketed and sold by insurance companies. Meanwhile, pension plans are marketed and sold by banks and other financial institutions.  

The parties: in the case of PPAs, the parties are the policyholder and the insured, while for pension plans we talk instead about members.  

The money we invest goes by different names in each case: In the case of PPAs, we talk about accumulated rights, while for pension plans the correct term is vested rights.  

Returns PPAs guarantee the capital we pay in and also pay an interest rate, while pension plans offer no guarantee that the amount we pay in will be returned, unless they are also guaranteed. While the capital is not guaranteed, the potential return on these products is higher.

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