Savings and Retirement Savings Plan

Savings or saving money means not spending today to spend in the future. Money is for spending, either today, or in 20 years.

Ideally, you should start making monthly payments, an amount that comes out of your account without making a dent if possible on a monthly basis. It should not be too low so that you can save an amount that is important to you, but an amount that is not too high that it becomes uncomfortable.

What are the alternatives?

- Demand deposits, suitable for having a small amount of money to guarantee you monthly liquidity. Normally they are not remunerated, or you don't receive any interest on them, or the rate and interest are very low;

- Term deposits: Indicated for short or medium term savings, since the rates they guarantee are not very high;

- PPR: indicated for those who think in the long term. Besides a good profitability, it is possible to add to that the security of an insurance company. The goal of the person who constitutes it can be his retirement or other, being advantageous as long as it is in the long term.

- Life Insurance - Savings set up in an insurance company. It has interesting rates, a good alternative in the long term;

- Stocks, bonds and other financial applications. Financial instruments that require more attention, or even a professional manager, so that they do not turn out to be bad savings options.

In the short to medium term, you should favor term accounts and current accounts, but if you have a savings goal for more than 5 years, a life insurance policy or a Retirement Savings Plan will be more advantageous (the returns, taxation and security are higher).

 

What is the long-term advantage of saving in a PPR?

Firstly, the interest rates achieved are generally higher than those achieved with other savings instruments.

Also the capital gains taxes that the state collects (being retained by banks or insurance companies) whenever you are given interest are much lower in a PPR than in a demand deposit, term deposit, stocks or life insurance.

On the other hand, these taxes are only taken away from you at the end when you redeem, and not annually, with the advantage that they generate interest, over interest (compound interest).

In the following table, see which tax applies to each of the alternatives.

The situations foreseen in the law for PPR redemptions are:

- Provided that at least 5 years have elapsed since the date of the first delivery, if the amount of deliveries made in the first half of that period is > 35% of the total deliveries and provided that the person is over 60 years old.

- Complicated situations such as long-term unemployment, serious illness, death of the insured person.

Which of the available RPPs should you choose?

You should consider several variables before choosing a RPP:

• What is the expected profitability of the Retirement Savings Plan you are going to invest in?
• What are the charges that you will be charged? These charges will affect profitability. You should be especially careful about management fees charged each year of the contract.
• Which of the available companies guarantee the best security? If you are saving for the long term, five, ten or even more years, you should be careful.
• If you are a prudent investor find an alternative without the possibility of capital loss.

The website of the Insurance and Pension Funds Authority (formerly ISP) has a tool that you can consult which compares the existing Retirement Savings Plans in Portugal in terms of the profitability assigned, the charges that are levied and the companies. The analysis is complex.

Talk to us, we can advise you. On the contact page choose Rosa or Rui, specialists in this area.

You already have a PPR but are not satisfied. What to do?

If you already have a PPR in one and are not satisfied with the institution the profitability the charges that are being applied to it you can transfer to another PPR of your liking, with reduced costs 0.5% if it is a PPR with guaranteed return or without penalty if it has no guaranteed return.

Talk to us, we can analyze your current PPR and see if there is a better alternative in the market to make your savings more profitable.