We hope you are enjoying your well-deserved rest with good financial planning that will allow you a peaceful retirement. However, we are aware that there are also social security and savings issues to be resolved in retirement. En esta sección abordamos todas estas cuestiones.
Compatibility of retirement and work
How to reconcile work and pension payments
As a general rule, the pension is incompatible with being employed or self-employed and being registered with the social security system. Pension payments would therefore have to be suspended for the duration of such activity. However, there are a number of exceptions:
- Partial retirementallows the worker, in agreement with his employer, to reduce his working hours by between 25% and 50% and to receive the retirement pension in inverse proportion to the reduction in working hours. If the worker has not reached the statutory retirement age, the company must conclude a relief contract with another worker.
- Active retirementallows you to combine your retirement pension with a full-time or part-time job as an employee or self-employed worker, as long as you retire after the normal retirement age and with a percentage applicable to the regulatory base of 100% for having a full career of contributions. During active retirement, 50% of the pension is paid. However, if the activity is carried out on a self-employed basis and proof is provided that at least one employee is employed, the amount of the pension compatible with work is 100%.
- Flexible retirement allows a person who is already a pensioner to start a part-time job with a reduction in working hours of between 25% and 50% of the normal working hours, and to combine it with the pension they were receiving, reduced in proportion to the percentage of working hours worked part-time., allows those who are already a retirement pensioner to start a part-time job with a reduction in working hours between 25% and 50% over the usual working hours, and make it compatible with the pension they have been receiving, reduced in proportion to the percentage of working hours performed part-time.
- The old-age pension is also compatible with self-employment if the total annual income does not exceed the annual minimum wage. In this case, you do not have to be registered with any social security scheme. In this case, registration in any Social Security scheme is not required.
- The contributory retirement pension can also be combined with thedevelopment of an activity of artistic creation for which income is received from the ownership of intellectual property rights.
- On the other hand, the employer’s retirement pension is compatible with themere maintenance of the ownership of the business or commercial establishment, provided that he does not carry out any work.
Pension plan collection
Pension plan payment methods
Upon the occurrence of a contingency, the right to the payment of the plan’s benefit (financial entitlement of the beneficiary) arises. There are different forms of payment. Usually, the specifications of the plans allow the beneficiary to choose between the different modalities allowed by the legislation, which can be: There are different forms of payment. Usually, the specifications of the plans allow the beneficiary to choose between the different modalities allowed by the legislation, which can be:
- In the form of a lump sum: The beneficiary receives the full amount of the plan in a single payment. It can be paid immediately (when the contingency occurs), or deferred to a later date specified by the beneficiary. It may be payable immediately (on the occurrence of the contingency), or deferred to a later date specified by the beneficiary.
- In the form of an annuity: Annuities can be of different types: temporary or lifetime, with a guaranteed amount and duration, or financial annuities whose amount or duration are not guaranteed but depend on the evolution of the value and profitability of the pension fund.
- Mixed form: Combines a capital and an income.
- Flexible: The beneficiary freely decides the dates and amounts of the payments, with no fixed periodicity. The outstanding economic entitlement also varies according to the evolution of the value of the fund and its performance. The outstanding economic claim also varies according to the evolution of the fund’s value and its performance.
Taxation of redemption plans
What is the tax impact of pension plan withdrawals?
The amount from the payment of a pension plan will be considered as earned income for personal income tax purposes, regardless of the form of payment chosen. However, if you choose to redeem in the form of capital, a 40% reduction may be applied to the amount from contributions made prior to 31/12/2006, provided that the redemption takes place within two full tax years from the date on which the contingency occurs. For example, if a person retires on 1 October 2021, he/she would have to make this withdrawal in the form of a capital sum before 31 December 2023. However, if you choose to redeem in the form of capital, a 40% reduction may be applied to the amount from contributions made prior to 31/12/2006, provided that the redemption takes place within two full tax years from the date on which the contingency occurs. For example, if a person retires on 1 October 2021, he/she would have to make this withdrawal in the form of a capital sum before 31 December 2023.
Tax residents in the Basque Country
A 40% reduction is applied to capital contributions (with a limit of 300.000 euros) if it is the first benefit for each of the different contingencies, provided that more than 2 years have elapsed since the first contribution. This time limit is not required for incapacity or dependency.
Tax residents in Navarre
Benefits in the form of capital are reduced by 40% (50% in the case of incapacity) provided that at least 2 years have elapsed since the first contribution.
Compatibility of contribution and benefit
Compatibility between pension plan contributions and benefits
According to Article 11 ofthe Pension Plan and Pension Fund Regulations (RPFP), as a general rule, it is not possible to be a participant and a beneficiary at the same time for the same contingency in a pension plan or as a result of belonging to several pension plans, and it is incompatible to make contributions and receive benefits for the same contingency at the same time., in general, the condition of participant and that of beneficiary may not be combined for the same contingency in a pension plan or due to belonging to several pension plans, being incompatible the making of contributions and the collection of benefits for the same contingency simultaneously.
As soon as a member reaches retirement age, he or she can continue to make contributions to the pension plan. However, once the retirement benefit has begun to be paid, contributions can only be used for death and dependency contingencies.
If at the time of retirement the participant is still registered in another social security scheme due to a second activity, he/she may also continue to make contributions to the pension plan, although, once he/she begins to receive the retirement benefit, the contributions may only be used for the contingencies of death and dependency. The same scheme shall also apply to members taking partial retirement.