Contributions to pension plans: there are no real tax savings

At the end of the year, we usually think about how we can save on income tax. Let's start, however, with some bad news: in Catalonia—compared to other autonomous communities—the possibilities are quite limited. While in other regions everyday expenses like gym memberships can be deducted, here the existing deductions are often difficult for most taxpayers to claim, such as the purchase of an electric vehicle, home renovations with energy efficiency improvements, or compensation for losses on stocks. One of the few truly common options is reducing taxable income through contributions to private pension plans. A few years ago, this instrument was much more attractive, but currently the reduction is limited to a maximum of €1,500 per year for individual contributions, or up to €10,000 in total if the company also contributes. In other words, no matter how much a person contributes, for example, €20,000 to their individual pension plan, they can only reduce their taxable income by €1,500 on their tax return. Although this mechanism offers an immediate tax benefit, in the long run it presents more disadvantages than advantages. On the one hand, the money is locked and can only be withdrawn under certain circumstances stipulated by law. The positive aspect is that it is a financial instrument that ends up yielding a positive result in most cases, given its long-term nature. On the other hand, when the money is withdrawn, it is taxed in full as employment income, applying the personal income tax rate in force at that time. Often, moreover, the future tax rate is higher than the one that applied when the income was generated. Therefore, it is not a real tax saving – the State never forgoes collecting – but simply a deferral of tax payment.