Taxation plays a central role in encouraging long-term savings. This is the conclusion of a study by the Securities Market Commission (CMVM) on the subject, which identifies six main measures highlighting the importance of encouraging the savings of Portuguese families who reduced and mostly stored in warehouses.
“Long-term saving plays a fundamental role in improving the financial security and well-being of individuals and families, as well as in financing companies and the economy as a whole. It is very difficult and often difficult, especially for families,” points out from a document published in World Investor Week.
That is why states encourage and support the formation of these savings, namely through tax incentives. Portugal is already including some of these exemptions in its tax system, but the regulator believes more are needed. Here are six measures:
1. Favorable taxation for the new “European NDP”.
The Pan-European Reform Product (PEPP), which came into force in March 2022 national regulation was promised government by the end of this year – is the goal of the first recommendation. The CMVM calls for the creation of a PEPP tax regime “in line with the government capitalization regime”.
This equalization will mean tax deductions for PEPP subscribers, tax exemption for PEPP investment portfolios, and more tax-friendly treatment of payments made by PEPP to its subscribers when they subsequently gain access to benefits.
2. European investment funds
With regard to European products, the CMVM is also considering European Union long-term investment funds (ELTIF), requiring that the tax treatment for collective investment bodies apply to both this product and credit funds, allowing their holders to benefit. from tax deferral on redemption or reimbursement in case of reinvestment.
3. PPR style savings accounts
CMVM’s second proposal is to create individual retirement savings plans or accounts that are eligible for the Savings and Retirement Plan (PPR) regime. In other words, these would be accounts in which depositors could place their savings up to a certain amount, as well as buy and transact financial instruments on them.
4. Reformulation of the IRS collection
A reformulation and increase in the IRS collection deduction applied to long-term retirement savings products (depending on the various ways this can be done) is seen as necessary to encourage long-term savings.
5. Reinvestment of capital in deferred tax funds
Postponing the taxation of redemption or reimbursement of investment funds in case of reinvestment is also one of the measures. In the case of transfers between funds, the relevant taxation will only take place when the investor leaves the investment fund circuit and at rates that are all the more favorable the longer the investment in this circuit remains stable.
6. “Pair contributions”
In addition to taxes, CMVM also proposes the creation of programs to encourage long-term savings by establishing upfront commitments between companies and workers to save on future wage increases. According to the watchdog, these “coincident contributions” would allow deferral of repayments or refunds of taxes in the event of a reinvestment.
“Saving to achieve specific long-term goals allows families to increase their own funds to meet these expenses, reduce credit use, monthly efforts of families associated with a reduction in credit and the risk of default for the financial sector. “, he emphasizes.
CMVM adds that the application of long-term savings in financial instruments tends to be advantageous because the return on savings applied to them tends to be higher than the return on other financial products such as bank deposits.
