The retirement of self-employed workers brings not only a break but also a good handful of questions including how much will I be charged? Can I continue with my standard of living?
Being autonomous involves dealing with a series of fiscal and legislative features that we are not going to discover now. And yet, as far as retirement is concerned, self-employed workers are not so different from those who work as employees. Time and level of contribution are the two variables that are maintained in both cases to calculate how much we will remain pension. Only in the case of the self-employed is in their hands – whenever their level of income can afford it – to increase their contribution base and thus, raise their level of income after retirement. But sometimes this will not be enough to maintain our standard of living: here comes the pension plan.
The pension plan, supplementary to the public retirement pension
The pension plans are usually a savings product and interesting for those who consider investing their public retirement pension will not be enough. In the case of the self-employed, it is more than likely to be so. And to the data we refer, because according to the Federation of Autonomous Workers, the average pension that a self-employed retired in 2015 was 691.49 euros per month … 40% less than the average pension of retired workers. It has an explanation: Social Security data show that 86% of the Spanish self-employed are listed on the minimum basis, which means that their retirement benefit is also the minimum.
To avoid this scenario, the self-employed person can resort mainly to two strategies. On the one hand, increase your contribution base and thus receive a higher benefit at the time of retirement. On the other, you can pose the option of opening a pension plan, which brings a good handful of benefits.
Advantages of the pension plan for the self-employed
Although there is no pension scheme that is ‘exclusive’ for self-employed, it is true that given their characteristics, the current pension plans adapt especially well to that roller coaster that means to be autonomous. Let’s see why:
- The contributions tax on the Income Statement: this feature suits the self-employed, as it will help you to save money in order to pay the IRPF. For example, let’s say you are about to go up the stretch because you have increased your income in recent months, so you will spend from 19 to 24%. You may be interested in contributing a certain amount of money to the pension plan to avoid reaching that higher stretch that makes you pay more.
- Minimum contribution: the pension plan allows providing in each moment what the saver can well, within his possibilities. The annual cap is at 8,000 euros or 30% of net income from work, but the minimum contribution is open to what the client wants to invest: for example, during the first years, 50 euros can be contributed per month for when increase the income, can also increase the contribution to the pension plan.
- More than a saving, an investment: what the self-employed contributes to their pension plan is not kept in a box, but is invested in equity assets as stocks, and fixed income assets. Thus, depending on the profile of the investor you have adopted – choosing between conservative, moderate and determined – these savings can grow in a very interesting way. In fact, to calculate what would be the estimated capital you would receive for your pension plan, we provide you with our simulators.
A final example
Let’s say that we are a 40 year old self-employed who has contributed his entire working life to the minimum base. We have been working for 15 years and we do not plan to increase our contribution, so we are quite clear that at the time of retirement we will be entitled to about 10,000 euros per year of public pension. With 14 payments, that leaves us with approximately 714 euros per month.
By the time we turn 40, we start to contribute 100 euros per month to a pension plan . In addition, the fiscal savings provided by the plan, these 1200 euros per year invested will translate into about 40,000 euros estimated at the time of retirement. A very interesting supplement to our pension.
However, when it comes to rescuing our pension plan we have to remember that it will be taxed as income from work, that is, we will have to pay taxes for the amount we are recovering. This is where it is important to use all the tools that puts at your service so that you can calculate how much you need to contribute to your pension plan to maintain your standard of living, or how much you can save on IRPF payments with contributions to the plan.