CAP or pension fund: what are the differences?

by Johnlabunski Labunski John Labunski Dallas

Both are forms of savings that allow you to set aside economic resources for your future. But what is best for you, a CAP accumulation plan or a pension fund?

We are going through a historical period in which certainties in our economic future seem to crumble too easily. Even the compulsory retirement provision no longer offers adequate guarantees. Finding financial tools to protect your standard of living when you can no longer work is a growing need.

However, we often don't have enough knowledge to know what is best to do and which financial instruments to consider. Should you subscribe to a pension fund? Who could you contact and how does it work? Will it be enough, or should you immediately think about an accumulation plan?

These are all legitimate questions, but they create a tangle of doubts and anxieties that risk putting you off important decisions. It is best to find the answers and dissolve it as soon as possible. Let's do it together.

CAP or pension fund: main differences

CAP or pension fund are not the same, one is not worth the other. Both are used to help you manage your savings with awareness and plan for the future, but they are financial instruments with different characteristics and oriented towards different purposes.

As the name suggests, the pension fund is focused on creating an annuity to supplement the mandatory pension provision, to guarantee you the desired standard of living during old age. Instead, the savings plan is a more flexible and less binding form of investment that can be useful for various medium to long-term goals.

So, which one should you choose? Better CAP or pension fund? To better grasp the differences and understand what to do, we just have to understand what they are, what risks they entail and what advantages they offer.

Pension fund: why subscribe it

Over time, the pension received by an employee will be lower and lower. If today it is slightly lower than the last salary received, we will reach around 40% or 50% in the next 30 years. Thinking of a form of supplementary pension therefore becomes indispensable to supplement that provided for by the public compulsory system.

Paying the accrued severance pay into a pension fund is a smart choice. In fact, if left in the company it is subject to taxation when it is liquidated. With the ever-changing world of work, it's easy to find yourself changing employer more often than in the past. If you consider that every time you lose a portion of your severance pay, with a view to saving for the future, it is certainly not the best solution.

Therefore, if you subscribe to a pension fund where you can pay the severance pay and, when possible, you supplement it with voluntary payments, you are assured of an annuity to complement the compulsory social security.

Furthermore, where envisaged, on the basis of sectoral, company or employee-employer agreements, there are also forms of aggregate participation in social security instruments. In a nutshell, the employer makes an additional contribution to the employee's contribution available to employees who join the pension scheme on a collective basis.

Finally, the savings in the pension fund, in addition to being safer and more under control, than those left in the company, have a higher return and also enjoy a subsidized tax regime. Eg:

Voluntary supplementary payments are deductible

the taxes on the liquidation and revaluation of the severance pay paid into the fund are reduced compared to that left in the company.

In short, it is better to subscribe to a pension fund and be more relaxed. The sooner you start, the more economic resources you will have tomorrow, when you can finally enjoy your retirement.

Accumulation Plan (PAC): what it is and when to choose it

A Capital Accumulation Plan (PAC) is an investment method that, unlike the pension fund, is more flexible. In practice, by joining a mutual fund (OICR) or ETF, it allows you to invest, on a periodic basis, pre-established sums based on your possibilities. A solution that is well suited to the different needs of each type of saver.

In addition, your savings are managed by the investment fund underwritten and distributed in a diversified basket of financial instruments. This allows you to reduce the risks due to seasonality and sudden fluctuations in the markets. But not only that, gradual and automatic payments protect you from possible hazards fueled by emotional impulses, which could lead you to undermine proper financial management.

Therefore, compared to the pension fund, the savings plan is a more flexible tool. It allows you to withdraw the paid-in capital at any time, or to suspend or change the amount of payments. It is an investment solution that offers its best over medium to long periods, but you can also subscribe to a PAC for a duration of only one year. However, it is more advantageous than leaving all your savings in your checking account. If you want to learn more, in this article you will find everything you need to know: what the savings plan is and how it works.

It is clear that, once the PAC is concluded, the sum raised can be used to improve your standard of living, supplementing it with your pension. But an effective and dedicated tool for this purpose already exists, it is the pension fund . Therefore, usually, the savings plan is associated with specific financial goals , such as buying a house, a car, the children's university or any other project.

How to manage your savings to plan a peaceful future

So, what should you choose between CAP or pension fund ? It depends on your goals and the financial resources available. In any case, the right answer is: one does not exclude the other . On the one hand you create a drawer to draw on to ensure the tranquility of a peaceful old age, on the other you invest gradually to have the necessary resources to satisfy your life plans.

Diversifying is an essential mindset . It is for anyone who wants to plan effective financial management. And the key to gaining awareness, avoiding emotional traps or hasty decisions, is always proper financial education .

CAP or pension fund , it's a fake dilemma . Both are useful for accumulating resources that you can dedicate to different projects. So, the most important question is: what are your goals?

When you want to renovate your home, you know what you want to achieve and you rely on an architect who can turn your ideas into reality. Likewise, for effective financial planning , rely on a Private Banker with proven experience. A financial advisor who can accompany you in choosing the most suitable tools to carry out your projects.

Contact me (John Labunski) without obligation. I am at your disposal for a free consultation. We analyse your financial situation and develop a personalized financial planning according to your investment needs.