How to save for retirement in Portugal

From this article, you will find out which tools are available in Portugal to save money for retirement. So, if you associate your future with this country, read on! We are going to analyze in detail tools called PPR (Planos Poupanca Reforma): their varieties, advantages, and limitations of use.

PPR plans pension savings are financial products that are usually used to save money for retirement. This money will be an addition to your old-age pensions. By investing in PPR, you trust your capital to the company, which invests it to increase it by the time of your retirement. That is a long-term investment tool. However, people who know something about that can also use it for medium-term goals.

Unlike contributions to social fund insurance, PPR is a voluntary business. That is, only you can decide whether to use these tools, how much and where to invest, and when to request back your profit.

Main advantages of PPR

• Lower income tax than other financial instruments perform

Usually, the tax on income from deposits and investments for individuals is 28%. However, in the case of PPR, the tax will depend on when you withdraw your funds and your profit.

Subject to several conditions, you will pay a minimum tax of 8% (it will be even lower in the Azores, about 6.4%). What are these conditions:

• You withdraw money after 60 years of age or after your retirement age, or
• Before this age, but in case of a long period of unemployment, with a permanent disability or severe illness (your or of a member of your household), or
• To pay the mortgage on your permanent residence.

You can still take back your deposit if none of these conditions are met. However, in this case, the tax will depend on the duration of the agreement:

• during the first 5 years after concluding the agreement - you will pay a tax of 21.5% (17.2% in the Azores),
• 5-8 years - 17.2% (13.76% in the Azores),
• after 8 years, just 8.6% (6.88% in the Azores).

That is, receiving money is possible without waiting for a pension, but fines may be applied in this case, so read the agreement carefully!

If we talk only about tax rates, they are much more profitable with PPR than other investments and deposits.

• Tax deductions

For each year, when you invest in PPR, you can get back up to 20% of your investment as tax deductible when filing an IRS declaration. Maximum available sum deduction will depend on your age:

• If you are under 35, the deduction you can have will be no more than 400 euros.
• If you are between 35 and 50, it is at most 350 euros.
• If you are over 50, then it is 300 euros at maximum.

Furthermore, pay attention that there are limits on the amount of tax deductions based on income per person yearly. That is, if in some year you are supposed to make significant returns in categories of health care, education, hotels, restaurants, etc. (you can get some details from this article), then you can get a deduction from investments in PPR in a significantly reduced form or not acquire at all.

Types of PPR in Portugal

There are two kinds of pension savings plans: in the form of insurance and the structure of a fund. In both cases, the purpose is to increase your capital in the long term run.

PPR in the form of insurance (Seguros PPR) guarantees the safety of the deposit, but most cases don't guarantee high-level income, and if it ensures, then it will be minimal.

PPR as a fund (Fundos PPR) doesn't offer guarantees on invested capital or a certain income level. It is a more risky tool than insurance, but you can potentially get a much higher income.

You can choose periodicity contributions: monthly, quarterly, yearly, once, or repeatedly (not regularly, and each time there can be different sums).

You can also subscribe to several plans for pension savings and transfer capital between them. Transferring money from one PPR instrument to another PPR tool is always free. Usually, more risk is recommended for those who are longer before retirement. Even if a person invests in a PPR fund a few years before he retires, he can transfer everything to PPR insurance, which guarantees to save the investment and income.

Charges related to PPR products

Depending on the product and the organization that offers it, charges are possible for:

• Product subscription for the product,
• Contributions,
• Managing capital,
• The total or partial extraction of capital,
• Transferring funds.

Read the agreement carefully to find out which charges you will pay.

Early return of savings

Tax deductions from PPR sound attractive but pay attention that some conditions need to be taken for these deductions to be a benefit. If these conditions fail, you won't only have to return the tax deductions but add 10% of them as a fine.

You won't be "penalized" for tax deductions from PPR if you take back money from a PPR product:

• When you are 60 years of age or after your retirement age, or
• Before this age, but in case of a long period of unemployment, with a permanent disability or severe illness (your or of a member of your household), or
• To pay the mortgage on your permanent residence. Many young, financially informed Portuguese use PPR funds to save up for a down payment on a mortgage in 5-10 years while also receiving tax deductions.

You can pick up your savings and not fulfill the conditions. However, you should not use the right to tax deductions from PPR in this case.

Everything needs to be planned beforehand. For example, if you subscribe to several PPR products, you can choose from which you will receive a deduction. You will only take back money from this pension product when you fulfill the conditions. And money in another PPR product from which you won't receive a deduction, you can dispose of more freely.

How to sign up for a retirement savings plan

Banks and investment companies usually offer a subscription to PPR in the form of a fund, and PPR in the form of insurance is offered by insurance companies and sometimes by banks. For a subscription, you need the following documents:

1. Identity card (artão de cidadão) or residence permit (Autorização de residence);
2. Proof of residential address (such as a utility bill or statement called Certidão de domicilio fiscal from the portal of the tax service), not older than 6 months;
3. Certificate of professional status not older than 6 months. For example, an employer's document confirming your salary transfer. You can even show the paper, not its entirety, but its "header" (Cabeçalho recibo de vencimento). Individual entrepreneurs may require different documents. In my case, one bill was enough (Recibo verde);
4. Bank account confirmation (printout from your online bank, where your IBAN is and it is indicated that you are the owner of the account);
5. You will also be asked to fill out a questionnaire (most likely electronically) to determine your investment profile, and this will be attached to the agreement;
6. The agreement itself with your signature. In my case, the signature was electronic, made using Chave Movel digital;
7.  I was also asked to send some documents confirming my parents' names. I don't have Portuguese citizenship, but I am married to a Portuguese man. Therefore, I sent a marriage certificate issued by the Portuguese registry office. The names of the parents were indicated there.

I hope this information was helpful to you. I am giving no advice on investing, but the PPR tool offers many exciting possibilities, and it makes sense to examine the offers on the market to understand how to use it most beneficially for you.