PPR: What changes in 2023?

So that we can guarantee the financial stability at retirement ageit is important to define a savings and investment strategy as early as possible. And there are several solutions that maximize our savings until the old-age pension. As is the case with Retirement Savings Plans (PPR), which, depending on the type we choose, can represent a low risk and have an attractive return. In the current context, of increased difficulties due to rising inflation, the government adopted a new measure that will facilitate the redemption of PPR in 2023🇧🇷 In this article we explain what PPRs arewhat types exist, how they work and what will change in these financial products next year. We also show you the advantages of subscribing to a PPR until the end of 2023, in case you have savings that you want to apply.

What is a PPR and how does it work?

A Retirement Savings Plan (PPR) is a financial product which aims make money in the long run, in addition to complementing the reform. Since it’s a long term profitable productthe traditional way of looking at a PPR is as a supplement to old-age pension, in order to guarantee stability during the reform. But bear in mind that the way to save more money in a PPR until retirement age is invest early🇧🇷 Not only to have added security when you stop working, but also enjoy tax benefits at the IRS level🇧🇷 Also know that it is not necessary to wait until the retirement period to redeem the money you invested in the PPR. It is possible to achieve medium-term savings and get back money early, subject to certain conditions. In any case, redemption is always possible, subject to penalties outside the legal conditions. Read more: Am I old enough to apply for a PPR?

PPR: What changes in 2023?

Due to context of high inflation that we went through, it was a new law passed (n.º 19/2022, of October 21) by the Government, in force until December 2023, relating to PPR redemptions. The new law allows Retirement savings plans (PPR), Savings-Education Plans (PPE) and Savings-Retirement/Education Plans (PPR/E) are reimbursed up to the monthly limit of the Social Support Index (IAS) by participants without any penalty.

How much will I be able to withdraw from PPR without penalties in 2023?

Considering the increase in the IAS for 478.70 euros in 2023, it will be possible to redeem this amount, per month, without penalties. Which means that, in all, you will be able to redeem up to 5,744.40 euros without penalty next year. This new legislation allows you to subscribe to a PPR later this year, enjoying the tax benefits and being able to withdraw your money monthly, in an amount equivalent to the IAS, throughout 2023🇧🇷 This without being subject to returning the IRS deduction, nor the 10% “fine” for each year in which you were entitled to benefits. Also read: Guide on PPR: No more doubts about Retirement Savings Plans

Did you know that there are two types of PPR?

You can choose between two types of PPR: in one of them your money is guaranteed, while the return is lower; in the other, it is possible to make a significant return on your money, with, on the other hand, a greater risk of losing your savings. You can choose between PPR insurance and PPR funds.

PPR Insurance

The first type of PPR are called PPR insuranceproducts where the capital is applied to an autonomous fundgenerating a Minimum efficiency🇧🇷 That is, in this product there are no great risks. PPR insurance has, as a rule, capital guarantee (except in specific and atypical cases). It is, therefore, a more conservative option when it comes to investment, as the risk is very low, but guarantees only a small cash maximization long-term. In case you are looking for a PPR as a complement to your retirement and you don’t want to lose your savings, even if you are not maximizing your money significantly, PPR insurance is a good option. Is safe choice just a few years before retirement age, ensuring you don’t lose your money. In this product, the Disclosure of income is done on an annual basis and not daily, as we will see in the product below. Here, the potential return is lower and follows interest rates.

PPR Funds

Then there are still PPR fundswhich are now more similar to securities investments, having higher degrees of risk🇧🇷 However, you can choose the fund according to the level of risk you want to run, as there are risk-free funds on the market, with guaranteed capital and/or income, with low valuation expectations, but also funds with high risk and high potential returns. In PPR funds, the capital is expressed in units of participation, so it has a certain value that increases and decreases depending on its profitability. These products are managed by pension fund management companies🇧🇷 Taking into account the investment policy of the product in question, these companies apply the value that they place periodically. But the capital contributions are already made by the product’s underwriters, which means that you can redeem your money early or when you reach retirement age🇧🇷 In this case, you can know the daily value of the participation units on the websites of management companies, and manages to transfer your investment from one fund to another or even to another institution. In this type of PPR, the objective goes more through the long term investment, and you can then redeem your investment early. However, having to be well aware of the policies in these funds: redemption conditions, commissions, among others. Inform yourself in advanceabout the advantages of investing in a PPR and all these pre-contractual conditions in the policybefore subscribing to the product.

In what situations can I redeem the PPR without penalties?

Excluding the exceptions determined by the temporary legislation, which is in force until the end of next year, there are specific situations in which it is possible to redeem the PPR without penalties regardless of the value, according to the legislation of Decree-Law n.º 158/2002, of 2 July. These are: old age pension the participant or the spouse (in the case of the couple’s property regime); long term unemployment the participant, or any of the household members; Permanent incapacity to work of the participant or any member of the household, regardless of the cause; Serious illness the participant or any member of the household; From 60 years old the participant or the spouse (under the couple’s property regime); At the case of death of the participant, and the value of the PPR/E is delivered to the heirs and if it is designated to a beneficiary. And on the death of the spouse, if this is a common asset, the part of the value of the PPR/E corresponds to the participant or the heirs; Payment of credit agreement installments secured by a mortgage on a property intended for the participant’s permanent residence; If the participant or household members attend or join a vocational education or higher education course🇧🇷 This is if the frequency generates expenses in the respective year. In addition, to redeem the PPR without penalties, in certain cases there are also others conditions that have to be fulfilled: for example, in cases of access to the old-age pension, age over 60, use for the payment of credit installments and attendance of courses or higher education, it is only possible redeem amounts from the PPR that relate to deliveries made at least 5 years ago🇧🇷 And note that at least 35% of total deliveries must have been made during the first half of the term of the contract🇧🇷

Does subscribing to a PPR entitle to tax benefits?

Entry tax benefits

As they are specific financial products to reinforce the old-age pension and create long-term savings, the PPR entitle to tax benefits at the IRS🇧🇷 Both on entry and exit. The entrancethese products give the possibility to deduct 20% of the applied amounts from the collection in the IRS declaration annually, but with age limits. So, until 35 years, can deduct 400 euroscorresponding to a investment of 2,000 euros🇧🇷 From 35 years to 50 yearscan you deduce 350 euroscase invest 1,750 eurosand two 50 years to retirement ageit is possible to deduce 300 eurosif you invest 1,500 euros🇧🇷 However, if you want early redeem money from your PPRafter enjoying these tax benefits, know that penalty can be high🇧🇷 This is because will have to return the tax benefits to which he was entitled, plus 10% of the amount you received for each year🇧🇷 Read also: Is it worth declaring the Retirement Savings Plan at the IRS?

Exit tax benefits

PPR and tax benefits But there are also tax advantages of PPR on exit, such as the taxation regime upon recouping your investment in this product. If the redemption takes place under the legal conditions, the Income obtained with the PPR is only taxed at 8%, if they are not paid through rents over a period of more than 10 years. And why is it considered a tax benefit? Due to the fact that most of the income obtained from financial products is usually taxed at 28%🇧🇷 That is, if you invest 10,000 euros in a PPR, and when you retire, after 5 years from the first delivery, you redeem 15,000 euros, out of the 5,000 earned, you have to pay 400 euros in tax (8% * 5,000). And if you had to pay 28% tax, in this case, you would have to give up 1,400 of the 5,000 euros. Even in cases where the legal refund conditions are not mettaxation of income in PPR does not exceed 21.5%🇧🇷 If deliveries in the first half of the contract represent at least 35% of the total, taxation is 17.2% when reimbursement occurs after 5 years and less than 8 years ago, and at 8.6% when reimbursement occurs after 8 years.