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Retirement is increasingly one of the most important financial milestones in life. Retirement is becoming a longer and longer period of time and, at the same time, a stage of life to which we make increasing demands: travelling, enjoying family, developing hobbies and other things that obviously come at a cost. The good news is that there is increasing awareness and action to prepare for retirement. En esta sección queremos arrojar luz sobre las cuestiones más importantes para ahorrar y prepararse para el futuro.

Pension contributions

Limit on contributions that can be made to pension plans

Contributions to individual and associated pension plans are limited to a maximum of 2.000 euros per year, which applies jointly, so if you have several plans, the maximum annual contribution you can make as the sum of the contributions to all of them is 2.000 euros.

In the case of occupational pension plans, there is a joint maximum limit of 10.000 euros per year, of which the member may not exceed the 2.000 euros to which he is limited (including individual pension plans). The employer may contribute the full €10.000 if the member does not make any contribution. The employer may contribute the full €10.000 if the member does not make any contribution.

In the case of participants with a certain degree of physical disability (equal to or greater than 65%) or mental disability (equal to or greater than 33%), they may contribute up to 24.450 euros per year.

It is also possible to make contributions in favour of the spouse, provided that the latter has earned income of less than 8.000 euros per year, for a maximum amount of 1.000 euros per year.

Tax residents in ‘Pais Vasco’:

  • They can contribute up to a maximum of €5,000 per year to individual EPSVs or individual pension plans. If the employer contributes to an EPSV or occupational pension plan, the maximum joint contribution is €12.000 per year, including both occupational and individual plans. If the employer contributes to an EPSV or occupational pension plan, the maximum joint contribution is €12.000 per year, including both occupational and individual plans.
  • The maximum contribution in favour of the spouse is 2.400 euros per year.

Tax residents in Navarra:

  • Those under 50 years of age can contribute a maximum of 2,000 euros per year, while those over 50 years of age can contribute up to 5,000 euros per year.
  • The contribution limit for the spouse is €2.000 if his or her general taxable income is less than €8.500.

Taxation Pension Plans

Taxation of contributions to pension schemes

Contributions to pension plans are deductible in the tax return, reducing the taxable base. The deduction limit will be the lower of the following amounts: The deduction limit will be the lower of the following amounts:

  • 2.000 euros (up to 10.000 euros if there are corporate contributions)
  • 30% of net earned income.

If you have made contributions that are not deductible (because they exceed the limit) for personal income tax purposes, the excess can be carried forward to the following five tax years.

Tax residents in ‘Pais Vasco’:

Up to a maximum of 12.000 euros per year may be deducted (5,000 euros per year in the case of individual systems, up to 12.000 euros for business contributions)

Tax residents in Navarra:

  • Under 50s: maximum deductible annual contribution of €2.000 or 30% of your income from work and economic activities (whichever is lower).
  • Over 50s: maximum annual deductible contribution of €5.000 or 50% of your income from work and economic activities (whichever is less).

Pension Plan Rescue

Situations that allow the pension plan to be surrendered

The pension plan is a pension savings instrument that is set up to generate savings for retirement. However, there are other cases that allow the plan to be paid out before the participant’s retirement. The Pension Plans and Funds Regulations provide for four contingencies and two exceptional cases of liquidity: However, there are other cases that allow the plan to be paid out before the participant’s retirement. The Pension Plans and Funds Regulations provide for four contingencies and two exceptional cases of liquidity:

Contingencies:

  • Retirement from Social Security, whether ordinary, early or deferred: If you are not eligible for retirement, it is understood that you can apply for it when you reach the age of 65, provided that you do not work or have ceased working or professional activity, and you are not contributing for the contingency of retirement in any Social Security scheme. In addition, if the specifications of the pension plan provide for it, you will be able to receive the retirement benefit in advance from the age of 60. Additionally, if the specifications of the pension plan provide for it, you can anticipate the receipt of the corresponding retirement benefit from 60 years of age.

  • In case of permanent total, absolute or severe disability, recognised by the Social Security.
  • Death. In this case, the benefit is paid to beneficiaries designated by the participant or those recognised in the Regulations of the plan. In this case, the benefit is directed to beneficiaries designated by the participant or those recognized in the plan’s Regulations.
  • Situation of severe dependency or great dependency, according to the provisions of Law 39/2006, of 14 December, on the Promotion of Personal Autonomy and Care for dependent persons.

Exceptional liquidity scenarios:

  • Be in a situation of long-term unemployment, which implies not being entitled to unemployment benefits at the contributory level or having exhausted them, and also being registered as a jobseeker.
  • Being affected by a serious illness, or their spouse, or one of their ascendants or descendants in the first degree or a person who, under guardianship or foster care, lives with the participant or is dependent on him/her.

In addition, from 1 January 2025, the amount of vested rights corresponding to contributions made at least ten years previously, including the vested rights existing at 31 December 2015, may also be drawn down in advance in accordance with the conditions, terms and limits established at any given time by the regulations in force and provided that this is provided for in the plan specifications.

Pension Plan Beneficiaries

Designation of beneficiaries of Pension Plans

In the event of death, the pension plan does not form part of the estate. The beneficiaries will be taxed as earned income at the moment they decide to redeem their rights, which can be at any time after death with no time limit. But who are the beneficiaries of these rights? There are two possible cases: The beneficiaries will be taxed as earned income at the moment they decide to redeem their rights, which can be at any time after death with no time limit. But who are the beneficiaries of these rights? There are two possible cases:

  • If the participant has designated beneficiaries by express designation, those designated persons shall be the beneficiaries of the rights.
  • If there are no expressly designated beneficiaries, the provisions of the plan specifications apply. Normally what is stated in the specifications coincides with the figure of the legal heir, i.e. children and spouse. Normally what is stated in the specifications coincides with the figure of the legal heir, i.e. children and spouse.

Designating beneficiaries is very simple, as all you have to do is fill in the beneficiary designation form and hand it in to the managing body. It is also possible to revoke the designation or make a new one, with the last one submitted always prevailing. It is also possible to assign different percentages to be received for each of the beneficiaries. It is also possible to revoke the designation or make a new one, with the last one submitted always prevailing. It is also possible to assign different percentages to be received for each of the beneficiaries.

Future retirement

My future retirement: what I will find

Spain has a pay-as-you-go public pension system, in which the pensions of a generation of retirees are financed by the contributions of the workers active at that time. This is known as the first pillar of the pension system. Historically, the public pension has had a preponderant weight in the income of retirees, as the coverage rate is high in comparison with neighbouring countries. Currently, for an average salary, the replacement rate of the public pension is over 75%. What does this mean? That the amount of the pension reaches 75% of the last salary. Private provision, the second pillar (company provision) and the third pillar (individual provision), provide the complementary income to the public pension in order to be able to maintain the desired standard of living in retirement. This is known as the first pillar of the pension system. Historically, the public pension has had a preponderant weight in the income of retirees, as the coverage rate is high in comparison with neighbouring countries. Currently, for an average salary, the replacement rate of the public pension is over 75%. What does this mean? That the amount of the pension reaches 75% of the last salary. Private provision, the second pillar (company provision) and the third pillar (individual provision), provide the complementary income to the public pension in order to be able to maintain the desired standard of living in retirement.

And what can we expect in the longer term? In all likelihood, the pension system will be subject to future reforms to adapt it to the challenges it faces, mainly of a demographic nature. However, and despite the reforms that may be forthcoming, there seems to be a consensus among the main national and international organisations that future pensions will be less generous, with the replacement rate converging to that of the countries around us. Is this a problem for future retirees? It need not be if you plan your retirement well and understand that supplementary provision will have to take on a greater weight among the incomes available to you in retirement. Saving for retirement will be the real way to ensure a retirement that lives up to one’s expectations. In all likelihood, the pension system will be subject to future reforms to adapt it to the challenges it faces, mainly of a demographic nature. However, and despite the reforms that may be forthcoming, there seems to be a consensus among the main national and international organisations that future pensions will be less generous, with the replacement rate converging to that of the countries around us. Is this a problem for future retirees? It need not be if you plan your retirement well and understand that supplementary provision will have to take on a greater weight among the incomes available to you in retirement. Saving for retirement will be the real way to ensure a retirement that lives up to one’s expectations.

Planning for retirement

How to plan properly for retirement

Longevity is one of the keys to understanding the importance of retirement planning. Let’s look at it in perspective. Our grandparents’ generation, not so long ago, retired at 65 and had about 10 years ahead of them. All of this with long working careers and pensions sufficient for a “quiet retirement” mentality. Let’s look at it in perspective. Our grandparents’ generation, not so long ago, retired at 65 and had about 10 years ahead of them. All of this with long working careers and pensions sufficient for a “quiet retirement” mentality.

Today, the retirement age has barely moved, but life expectancy is around 83 years. By the middle of the century, it will be close to 90. We are talking about retirement periods of more than 20 years, i.e. almost a quarter of a person’s life. This indeed requires good planning. Here are some tips on how to plan for retirement step by step: By the middle of the century, it will be close to 90. We are talking about retirement periods of more than 20 years, i.e. almost a quarter of a person’s life. This indeed requires good planning. Here are some tips on how to plan for retirement step by step:

  • Understanding what the future holds: To do this, it is important to start with an estimate, using one of the available simulators, including the Social Security simulator, of what the future retirement pension will be.

  • Determine how much to save: How much capital to accumulate in retirement in order to transform it into monthly income to supplement the public pension up to the level of income required for the lifestyle you want to lead.
  • Establish an investment strategy: Above all, start saving as soon as possible. Time is an ally in this regard, as it allows us to deal with unforeseen events and achieve the objective with a more gradual effort. Establish a regular and constant savings strategy, taking advantage of all the instruments available to us, especially the provision made available to us by our company, if applicable. And manage investment risk by adjusting it to the life cycle: the further away retirement is, the greater the risk. Time is an ally in this sense, as it allows us to face unforeseen events and achieve the objective with a more gradual effort. Establish a strategy of periodic and constant savings, taking advantage of all the instruments at our disposal, especially the forecast that our company makes available to us if it is the case. And manage investment risk by adjusting it to the life cycle: more risk the further away from retirement.
  • Get going: be consistent, don’t lose focus on the long term and review the strategy periodically to make sure we are on the right track.

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