When financial planning is mentioned, one of the most important aspects to consider is retirement. This period, which we all face at some point in life, requires adequate preparation to ensure that we maintain our standard of living, even after we stop working. In this context, the individual pension plan (IPP) becomes an essential tool to achieve this goal.
What is an individual pension plan?
An individual pension plan is a financial solution designed to help people save money for retirement. With a long-term focus, its objective is to accumulate capital throughout the working life, guaranteeing that, when the time comes to stop working, the saver will have funds to maintain a comfortable standard of living.
It is currently the most popular investment alternative for savers, as it provides a structured, secure and simple way to prepare for their financial future.
Is the pension plan worth it? Yes, it is. Beyond being a savings strategy, it is a financial tool that allows people to supplement the public pension. The most remarkable thing about an individual pension plan is its accessible and straightforward operation. Generally speaking, the saver makes regular contributions to the plan, and in this context, the fund managers are in charge of managing these investments and growing the assets.
Unlike traditional pension plans, this one offers greater flexibility and customization in portfolio management, which is why many people are choosing it for their investments.
Individual pension plan vs. traditional pension plan: How do they differ?
- Portfolio composition: In a traditional pension plan, asset selection is restricted to a predefined set, resulting in a more rigid and conservative structure. This means that investors have limited choices, generally focused on low-risk assets such as government bonds and fixed income funds. In an individual pension plan, on the other hand, savers enjoy a diversified portfolio, focusing on a variety of assets, which allows access to more diverse investment vehicles, such as stocks, mutual funds, real estate, among others.
- Greater portfolio flexibility: Another difference to highlight is the flexibility of the portfolio. In the case of a traditional pension plan, the selection of assets is more rigid, which restricts the options for adaptation and change. Whereas an individual pension plan offers savers the ability to make adjustments to their portfolio as needed.
- They allow for changes in composition versus the rigidity of traditional ones: Thanks to the customization provided by the individual pension plan, the investment can be tailored to each investor’s risk profile, meaning that those with a higher risk tolerance can choose to include more volatile and potentially more profitable assets. This contrasts with the rigidity of traditional plans, where any readjustment in the asset allocation could generate penalties for the investor’s risk profile, which means that those with higher risk tolerance can choose to include more volatile and potentially more profitable assets.
Now let’s look at the advantages of individual pension plans.
Advantages of individual pension plans
The individual pension plan presents a series of benefits for savers compared to other similar instruments. The most noteworthy are the following:
- Encourages long-term savings: They encourage continued savings, which helps people to accumulate significant capital over the years.
- Adaptable to each risk profile: The individual pension plan is designed to maximize the profitability of savings. To achieve this, it is adjusted to the particular profile of each individual, taking into account his or her needs and risk tolerance. In this way, the plan allows investors to increase their chances of generating returns.
- Tax advantages: Contributions made to a pension plan decrease the IRPF taxable base, resulting in tax savings during the years in which the contributions are made. In addition, transfers between different pension plans do not generate tax liability, even if gains are made in the process.
- Flexibility: Savers can adjust the amount of their contributions according to their financial situation, allowing them to adapt their amounts to their changing needs.
- Diversification in the variety of assets in which they can invest: To mitigate risks and enhance returns, individual pension plans allow investment in a variety of assets, ranging from stocks to mutual funds.
- Competitive returns: This financial instrument operates under the active management scheme, so investors can aspire to returns that exceed the market measure.
- Allows to choose who will inherit the plan in case of death: In the individual pension plan, the holder has the power to determine who will inherit the accumulated capital. This feature is fundamental, as it provides the saver with a level of control over his or her wealth that is not always available in other savings or investment instruments.
Manage individual pension plans with inbestMe
Now that you know the scope of the individual pension plan, you must decide how to manage this financial tool to maximize its potential and ensure a solid economic future. One option for investing in this product is inbestMe, a reliable roboadvisor for those who are looking for a pension plan.
This investment platform, which has been operating in Spain for more than five years, offers great flexibility in terms of contributions, allowing each user to adjust their contributions according to their economic situation. It also offers the possibility of suspending contributions to the pension plan without incurring severe penalties that could compromise the investor’s assets.
The flexibility provided by inbestMe in its pension plans clearly reflects the company’s philosophy: to boost the growth of its users’ savings. The company understands that its solutions must be adaptable to the changing needs of investors over time, as a long-term approach is crucial to ensure sustained growth of accumulated funds.
