In 2023 you can redeem up to 5,744.40 euros without penalty

In 2023 you can redeem up to 5,744.40 euros without penalty

PPR redemptions without penalties can be a bit confusing, as the law only allows these to happen in very specific situations🇧🇷 Although you have the right toredeem your PPR in advance anytimethis type of redemption is subject to penalties: return of tax benefits enjoyed, plus a penalty of 10% for each year, in addition to contractual penalties (such as early redemption fees).

However, until the end of next year, there is an exceptional change in the rules. This is because, given the current economic situation, the Government decided to allow the monthly redemption of a maximum amount equivalent to the value of the Social Support Index (IAS) without penaltiesso that families can have more liquidity to face the general rise in prices.

Redemption of a PPR without penalties

According to legislation (Decree-Law No. 158/2002, of July 2nd), the redemption of a PPR (Retirement Savings Plan) from an PPE (Education Savings Plan) or PPR/e (Retirement Savings Plan) reform/education) is only allowed without penalties under the following conditions:

  • Retirement due to old age of the participant or spouse, if the PPR/E is a common asset due to the couple’s property regime;
  • long term unemployment of the participant, but also of any of the household members;
  • Regardless of the cause, when there is permanent inability to work the participant or any member of his or her household;
  • Serious illness the participant or any member of the household;
  • From 60 years old participant or spouse (due to the couple’s property regime making the PPR a common good);
  • In case of participant’s death (the value of the PPR/E is delivered to the heirs and if it is designated to a beneficiary). In case of death of the spouse, if this is a common asset, the part of the value of the PPR/E corresponding to the participant or the heirs;
  • Payment of credit agreement installments secured by a mortgage on a property intended for the participant’s own and permanent residence. But note that the amount is intended for the payment of installments and not to amortize the housing loan.
  • Attendance or enrollment of the participant, as well as any of the members of their household, in a vocational education or higher education course. In this case, reimbursement is only approved in the case of PPE or PPR/E if the attendance generates expenses in the respective year.

However, there are certain conditions you need to meet in addition to those listed above. For example, in cases of access to an old-age pension, use for the payment of credit installments and attendance of courses or higher education, you can only withdraw amounts that relate to deliveries made five years ago (at least). Another detail to bear in mind is that at least 35% of total deliveries must have been performed during the first half of the term of the contract.

Also read: Learn how you can redeem the PPR without penalties

What has changed regarding the penalty-free redemption of a PPR?

After the approval of Law n.º 19/2022, of October 21st, the Government allowed that, until December 31, 2023the value of Retirement savings plans (PPR), Education savings plans (EPP) and Retirement/education savings plans (PPR/E) can be reimbursed up to the monthly limit of the IAS by the participants of these plans.

However, this measure has caused some doubts due to thes existing penalties relating to IRS tax benefits for early redemption or failure to meet all stipulated conditions. But to better understand what is at stake, we will explain these benefits.

PPR are financial products that aim to reinforce your old-age pension or create long-term savings. Given the specificity of these productsPPR grants the right to IRS tax benefits, namely entry benefits. These allow you to deduct 20% of the amounts invested per year from the IRS tax return, according to the following limits:

  • Up to 35 years: 400 euros. The 400 euros deduction corresponds to an investment of 2,000 euros.
  • From 35 to 50 years old: 350 euros. To benefit from the maximum deduction you need to invest 1,750 euros.
  • After the age of 50 until retirement age: 300 euros. In this specific case, the maximum benefit is related to an investment of 1,500 euros.

However, when withdrawing your PPR in advance after enjoying these tax benefits, you suffer a very high penalty. This is because, legally, you have to return the tax benefits you received (which can range from 400 to 300 euros per year)plus 10% of that amount for each year you enjoyed the benefits.

But this transitional measure comes exempt participants of a PPR, PPE or PPR/E from this penalty by Finance, for reimbursements up to the monthly limit of the Social Support Index (IAS).

Also read: What are the penalties for redeeming my PPR before the deadline?

What is the value of PPR redemptions without penalties?

As for the value of PPR redemptions without penalties, the Government’s measure ends up resulting in two different values:

  • In 2022, the measure applies to the last quarter of the year and refers to the IAS value in 2022, which is 443.20 euros. That is, if you redeemed the PPR in October, November and December, you can redeem a total value of 1,329.60 euros.
  • But in 2023, the new value of the Social Support Index (IAS) provided for in the State Budget comes into force. Therefore, the value of PPR redemptions without penalties will increase. So, monthly, you can redeem 478.70 euros until the 31st of December. This means that, if you withdraw the IAS amount every month until the end of 2023, you can redeem one total of 5,744.40 euros.

However, know that you will never receive the full amount of an IAS per month🇧🇷 When redeeming PPR money you have to pay capital gains taxes and, in some cases, commissions associated with the redemption. Therefore, at least, you will have to pay 8% on capital gains of that amount. This is the taxation associated with redemption under normal conditions where there is no penalty.

This means that the measure allows you to redeem the IAS amount on a monthly basis without having to return the IRS deduction you received or the 10% “fine” for each year you enjoyed the benefit. However, you will have to pay capital gains tax. And know that the 8% is a tax benefit (on exit) attributed to PPR. Most capital gains from other investments is taxed at 28%.

Should the entity where I have my PPR inform me about this regime?

Yup. All entities authorized to market PPR, PPE and PPR/E must publicly disclose, by December 31, 2023, the possibility of redemption under this measure. The information must appear on the official website, and in account statements that provide information to the customer or in the respective statement “sent” to the customer.

If you detect any illegality in the value of PPR redemptions without penalties or in the procedures provided for by law, know that the Bank of Portugal and the ASF (Insurance and Pension Funds Supervisory Authority) are in charge of supervising compliance with this measure.

Also read: Guide on PPR: No more doubts about Retirement Savings Plans

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