Pension fund or PAC? Which one to choose to have more money

Pension fund or capital accumulation plan (PAC)? This is the question that more and more Italians are asking themselves to guarantee a stable pension and a secure financial future.
The debate is heated and the decision is not simple.
Both options offer the ability to save for retirement and other financial goals, but which is really worth it? In this guide, we will explore the characteristics of both solutions, helping you to understand when it is preferable to opt for a PAC and when a pension fund might be the better choice.
Pension fund or PAC? Complete guide What is a pension fund? The advantages of the pension fund The disadvantages of the pension fund What is a capital accumulation plan (PAC)? The advantages of the PAC The disadvantages of the PAC Differences between PACs and pension funds.
Which one is better? What is a pension fund? Pension funds are financial instruments created to manage and accumulate resources during the subscriber's working years, in order to provide a supplementary pension to the state pension upon retirement from the world of work.
These funds collect the contributions paid both by workers and, in some cases, by employers, investing them in different types of assets (shares, bonds, real estate, etc.) to make them grow over time.
The types of pension funds are: Open pension funds: accessible to anyone who wishes to join, regardless of the type of work performed.
Closed pension funds: reserved for specific categories of workers, such as employees of a specific company or members of certain professional categories.
Individual Pension Plans (PIP): These are forms of individual pension savings managed by insurance companies.
The advantages of the pension fund The advantages of investing in a pension fund are many and fundamental to guarantee long-term financial security.
These include: Tax deductibility: payments made to the pension fund are deductible up to a maximum of €5,164.47 per year.
This means that the amount paid can be subtracted from your taxable income, thus reducing the income tax you pay.
The tax benefit obtained depends on the IRPEF rate applied, offering a significant tax advantage over the years.
IRPEF rates23%35%43% Income ranges 0-28,000€ 28,001-50,000€ >50,001€ Maximum deductible payment 5,164.57€ 5,164.57€ 5,164.57€ Tax savings 1,187.85€ 1,807.60€ 2,220.77€ Maximum exit cost (redemption) 15% 15% 15% Minimum exit cost (>35 years of tenure) 9% 9% 9% Preferential taxation on capital gains: capital gains generated within the pension fund are subject to preferential taxation by 20%.
The rate drops to 12.5% for the portion deriving from the possession of government bonds.
This means that returns earned on investments within the fund are taxed at a lower rate than regular income from work or investments, allowing for greater capital growth over time.
Furthermore, the capital paid into the pension fund is totally exempt from paying the stamp duty of 0.20% per year.
Investment discipline: Investing in a pension fund requires financial discipline, as you cannot give in to emotions and suddenly disinvest.
This helps investors maintain a long-term strategy, avoiding impulsive decisions that could compromise retirement goals.
Non-seize and non-seizeable: pension funds offer additional legal protection as they are inaccessible to creditors and cannot be subject to seizure.
This guarantees the safety of the savings accumulated in the fund, thus protecting the investor's assets from any financial crisis situations.
The disadvantages of the pension fund The disadvantages associated with the pension fund can influence investors' decisions and include several aspects: High management costs: the costs associated with managing a pension fund can be significant and significantly reduce the overall investment return in the long term .
It is essential to fully understand the costs of each segment of the pension fund and compare them with the sector average to evaluate the actual convenience of the investment.
Potentially lower return: the return of pension funds often tends to be lower than that which could be obtained through a Capital Accumulation Plan (PAC) or other investment instruments.
This can reduce your effectiveness in achieving financial goals in the long term.
Immobilization of capital: Investing in a pension fund often involves immobilizing your capital for a long period of time, unless certain circumstances arise that allow early access to the funds.
This immobilization can limit the investor's financial flexibility and make it difficult to respond to unexpected financial needs.
read also Supplementary pension, how did pension funds perform in 2023? What is a capital accumulation plan (CAP)? The Capital Accumulation Plan (PAC) is an investment and savings management option that offers the opportunity to gradually and constantly increase the capital accumulated over time.
Thanks to periodic payments, the PAC allows you to adapt to the various needs of savers and those who aim to invest in the long term, offering a flexible solution suitable for different financial situations.
Unlike the pension fund, the PAC is not linked to supplementary pension provision and can be subscribed to by anyone who wishes to invest in the long term, regardless of their employment status.
One of its main attractions lies in its adaptability.
This investment tool allows you to gradually increase capital over time, allowing savers to diversify their portfolio and mitigate risks.
Unlike the pension fund, the PAC does not impose rigid time constraints before being able to access the accumulated capital, offering greater flexibility.
Furthermore, it is not subject to specific restrictions, allowing subscribers to manage their investment in a more free and personalized way.
The advantages of the PAC The advantages of the Capital Accumulation Plan (PAC) are many and include: Regular and constant savings: through the PAC, it is possible to save a fixed portion of your salary regularly and consistently.
This involves financial discipline that can help avoid impulsive emotional decisions related to investments.
Reduction of the negative emotional effect: thanks to the planning of periodic investments, the PAC helps to avoid the so-called "emotional trap", i.e.
the impulse to invest when the markets are at their highest and disinvest when they are at their lowest.
Creation of assets: the PAC offers the possibility for any investor to gradually build their own assets over time, regardless of their initial financial resources.
Temporal diversification to mitigate risk: one of the peculiarities of the PAC is its ability to diversify investments over time.
This approach allows you to reduce the risk linked to possible market fluctuations by distributing purchases over different periods.
The disadvantages of the PAC As for the disadvantages, the costs associated with the PAC must be considered.
Not all savings plans are the same and costs may vary depending on the instruments chosen.
For example, PACs in actively managed funds or ETFs may incur different costs that impact overall returns.
It is important to carefully evaluate costs and look for solutions that offer a balanced cost-return ratio to maximize the final return on your investment.
Differences between PACs and pension funds.
Which one is better? The comparison between the Capital Accumulation Plan (PAC) and pension funds reveals significant differences that can influence individuals' investment decisions.
Below we examine the characteristics of both options through a practical example: CAP characteristics on ETFPension Fund Investment flexibility High: the investor has direct control over investment choices and can adapt their portfolio based on their financial needs and objectives.
Limited: the investor delegates the management of his capital to a social security institution, with less direct control over investment decisions.
Tax treatment Ordinary taxation of 26% on capital gains.
Tax deductibility of contributions paid up to a maximum of 5,165 euros per year, with a preferential tax rate on the income of 20%.
Access to accumulated capital Flexible: the investor can disinvest at any time without particular restrictions.
Limited: access to the accumulated capital is subject to constraints and restrictions imposed by the pension fund regulations, with the possibility of early access only in certain circumstances.
Here is an example, to understand the potential impact of these differences: let's consider the case of Sofia, a 45-year-old freelancer with a gross annual income of 36,000 euros, willing to pay 300 euros a month.
Sofia must decide whether to sign up for an equity pension fund or an ETF PAC.
If she chooses the pension fund and pays 300 euros a month, Sofia saves around 1,260 euros a year thanks to the tax deduction.
With an average annual return of 4.20% (Convip data) after 20 years you will have accumulated around 122,700 euros, allowing you to obtain a supplementary pension of 323 euros per month.
Average annual returns Individual pension plans, Covip source (June 2023): Fund1 year (2022)5 years (2018-2022)10 years (2013-2022) Separate management 1.2% 1.4% 2.0% Bonds -5 .2% -0.9% -0.2% Balanced -12.3% -0.4% 1.7% Equity -13.2% 2.0% 4.7% Alternatively, if you opt for a PAC on ETFs, by investing the same monthly sum and obtaining an average annual return of 7%, after 20 years he will have accumulated approximately 185,800 euros.
Considering the impact of taxation, with the pension fund income taxed at 20% and the PAC on ETF subject to a tax of 26%, the solution with the PAC on ETF is still the most convenient, with a net capital of approximately 137,500 euros, against an accumulated capital of 98,160 euros with the pension fund.
Pension Fund ComparisonPAC on ETF Expected Return 4.2% (annual average) 7% (annual average) Monthly contribution 300 euros 300 euros Annual contribution 3,600 euros 3,600 euros Deductibility Yes (up to 5,165 euros) No Annual tax savings approximately 1,260 euros – Capital after 20 years approximately 122,700 euros approximately 185,800 euros Capital gains taxation 20% 26% Net capital after taxation approximately 98,160 euros approximately 137,500 euros The choice between PAC and pension fund depends on your financial needs, risk profile and long-term objectives.
The best decision will depend on your individual situation and specific needs.
Furthermore, the simulations change considerably based on age, the years remaining until retirement and the risk profile considered.
It is advisable to consult a financial expert to evaluate your options and make an informed decision.