Consolidation of Private Pensions Before Time: Is it Worth It?
Are you thinking about making private pension consolidation ahead of time? In this post we will tell you if it is really worth to redeem the money applied for your retirement.
consolidation of private pension ahead of time: Is it worth it?
When it comes to worrying about the future, making a private pension is one of the most popular and affordable options. Currently, many uncertainties surround the issue of retirement through the INSS.
Private pensions come not only as a suggestion for investment, but almost as an obligation for those who do not want to depend on the government when they reach senior citizens.
However, there may be some doubts about the rescue of private pension ahead of time. And this is what we are going to do in this guide, to help you make the calculations and to make the most of this investment.
What is private pension?
Private pension is an investment made through private banks with long-term income. That is, an investment of more than 5 years. In the case of private pension, the application is recommended is for decades.
The idea is that this is a way to guarantee an income complementary to retirement. The private pension is also advantageous for professionals who do not pay INSS or do not want to rely solely on this benefit.
Private pension plans work as follows: You deposit a certain amount every month, obligatorily, creating a fund that pays interest at the chosen portfolio. At the end of 20 or 30 years, for example, it is possible to withdraw all the money or request the monthly deposit into account of a specific amount.
This investment can be done in two ways: by the taxpayer himself (the individual) or by the company where he operates (the legal entity that makes the contribution automatically every month).
This second case is rarer, since all the companies that contract by compulsory contract collect the INSS from the employees. It is the INSS that guarantees the public retirement guaranteed by law, being it by age or by working time.
Private pension is a safe investment. But remember that each bank applies its administrative fees and that there are taxes on the income applied.
Is it possible to make a private pension consolidation ahead of time?
Yes, it is possible. However, there are some considerations that need to be made before you make that decision.
Of course there are unforeseen unemployment, crisis and other adversities that compel us to tinker with our financial reserves. In cases like these, nothing wiser than using that saved buck, right ?!
However, if you are not in an emergency and want to use the amount applied, be aware that there may be loss of income when the cash is withdrawn before the term established by the pension contract.
This is because each private pension has its pre-determined term at the time of opening the account, and taxes, fees and interest are applied according to that period of time.
If the money is withdrawn before the contract date, higher taxes and fees may apply for withdrawal, making you lose much of the investment.
Such cases can ruin years and years of much financial effort. In addition to the loss of money, the early retirement of private pension plans will change your planning. In this way, it will be necessary to rethink the future and make an even greater effort to achieve the dreamed goal at the time of initial application.
In our blog we have a post that explains how the simulation of retirement works.
So, is private pension consolidation ahead of time a good option?
As stated earlier, it is not a good option to make the private pension consolidation ahead of time. But it is critical that you assess the situation and check the real need for withdrawal.
Perhaps in the situation you encounter, consolidation of the application is the only way to maintain the financial stability of your home, for example.
When choosing a pension plan, you will need to choose between a PGBL or VGBL plan and between the progressive or regressive table. These decisions have a direct impact on how the Income Tax will be calculated up front at the time of withdrawal.
See below the characteristics of each type of private pension.
Progressive X-Regressive Table
Indicated to stimulate long-term reserves, the regressive table predicts a lower IR rate at the time of consolidation when the application time is longer. That is, the longer the money stays there, the less you will pay tax:
|Application period||IR rate charged|
|Up to 2 years||Discount of 35%|
|From 2 to 4 years||Discount of 30%|
|From 4 to 6||Discount of 25%|
|From 6 to 8 years||Discount of 20%|
|From 8 to 10 years||Discount of 15%|
|After 10 years||Discount of 10%|
The progressive table works with rates ranging from exemption up to 27.5%. That is, the same applied in the annual collection of Income Tax. In this case, the higher the amount redeemed, the higher the amount of income tax.
PGBL x VGBL
The pension models PGBL and VGBL also have their peculiarities at the time of the tax discount. Indicated for those who make the declaration of the Income Tax simplified, the Life Generating Free Benefits (VGBL), applies the discounts only on the income.
In the Free Benefit Generator Plan (PGBL), which is indicated for those who make the complete declaration of Income Tax, the savings person deducts up to 12% of the taxable income per year from the IR calculation base. However, at the time of consolidation, the tax is calculated on the entire amount redeemed.
If you know that you will need to make a private pension consolidation ahead of time (in the short or medium term), you should apply the amount to another type of investment.
But if you are unhappy with the pension plan you have hired, be aware that all banks should offer the possibility of portability. Consult your manager and see the best option for your money to continue to yield.
Therefore, it is very important to take into consideration plans and deductions in order to make the most of your investments. Think before retiring what has already been invested in Private Pension! Money can be lost without much effort and big plans of your life will need to be re-designed from now on.