Retirement from work is now a stage closer and it is time to review issues that will help us to make the transition to this new episode in our lives from all points of view. Including financially. Managing the transition to retirement in the right way is a must in order to avoid surprises. In this section we want to help you understand the main financial implications, both those related to Social Security and those related to complementary pension systems, the savings you have been generating throughout your working life. Including financially. Managing the transition to retirement in the right way is a must in order to avoid surprises. In this section we want to help you understand the main financial implications, both those related to Social Security and those related to complementary pension systems, the savings you have been generating throughout your working life.
Types of Retirement
Retirement in Spain: context and modalities
The financial retirement benefit, which is included in all social security schemes, is intended to replace income from work with a single, lifelong pension that is not subject to any statute of limitations, when the worker ceases to work, in whole or in part, due to old age.
Age of access to ordinary retirement
One of the most important changes implemented in recent years affects the retirement age, which, by virtue of the reform approved in 2011, is gradually increasing from 65 to 67, where it will be set at 2027. However, the possibility of ordinary retirement at 65 is maintained in the case of workers with long contribution careers. The scheme is as follows: However, the possibility of ordinary retirement at 65 is maintained in the case of workers with long contribution careers. The scheme is as follows:
| YEAR | CONTRIBUTION PERIODS | AGE REQUIREMENT |
|---|---|---|
| 2013 | 35 years and 3 months or more: Less than 35 years and 3 months: |
65 years 65 years and 1 month |
| 2014 | 35 years and 6 months or more: Less than 35 years and 6 months: |
65 years 65 years and 2 months |
| 2015 | 35 years and 9 months or more: Under 35 years and 9 months: |
65 years 65 years and 3 months |
| 2016 | 36 years or older: Under 36 years old: |
65 years 65 years and 4 months |
| 2017 | 36 years and 3 months or more: Less than 36 years and 3 months: |
65 years 65 years and 5 months |
| 2018 | 36 years and 6 months or more: Less than 36 years and 6 months: |
65 years 65 years and 6 months |
| 2019 | 36 years and 9 months or more: Under 36 years and 9 months: |
65 years 65 years and 8 months |
| 2020 | 37 years of age or older: Under 37 years old: |
65 years 65 years and 10 months |
| 2021 | 37 years and 3 months or more: Less than 37 years and 3 months: |
65 years 66 years |
| 2022 | 37 years and 6 months or more: Less than 37 years and 6 months: |
65 years 66 years and 2 months |
| 2023 | 37 years and 9 months or more: Less than 37 years and 9 months: |
65 years 66 years and 4 months |
| 2024 | 38 years of age or older: Under 38 years old: |
65 years 66 years and 6 months |
| 2025 | 38 years and 3 months or more: Less than 38 years and 3 months: |
65 years 66 years and 8 months |
| 2026 | 38 years and 3 months or more: Less than 38 years and 3 months: |
65 years 66 years and 10 months |
| From 2027 | 38 years and 6 months or more: Less than 38 years and 6 months: |
65 years 67 years |
Eligibility for contributory retirement benefit
- Generic contribution period: 15 years.
- Specific contribution period: 2 years must be within the 15 years immediately preceding the time of entitlement or the date on which the obligation to contribute ceased, if the retirement pension is taken from a non-contributory situation.
Period of contributions eligible for pension calculation
In 2021, the pension is calculated on the basis of the contributions of the last 24 years. In 2022 and subsequent years, this period will be extended to the last 25 years. In 2022 and subsequent years, this period will be extended to the last 25 years.
Retirement modalities
- Ordinary retirement: Retirement on reaching the ordinary retirement age applicable according to the law.
- Delayed retirement: Retirement beyond the ordinary retirement age. It is subsidised by between 2% and 4% for each full year of contributions paid over and above the ordinary age. It is subsidized with between 2% and 4% for each full year of contributions above the ordinary age.
- Early retirement: There are various forms of early retirement, but the two most common are:
- Early retirement due to involuntary termination: This requires involuntary termination due to objective causes of company restructuring, having paid contributions for at least 33 years and having been registered with the SEPE as a job seeker for at least 6 months before applying for retirement. It allows retirement to be brought forward by up to 4 years. It allows anticipating retirement up to 4 years.
- Early retirement at the worker’s will:This requires at least 35 years of contributions and being registered or assimilated to registration with the Social Security. It allows retirement to be brought forward by up to 2 years. It allows anticipating retirement up to 2 years.
- Partial retirement: Allows the partial payment of a pension to be combined with work, reducing the working day. It is taken before the normal retirement age. It is accessed before the ordinary retirement age.
- Flexible retirement: Once retired, this allows you to combine partial pension payments with part-time work.
- Active retirement: Once retired, this allows 50% of the pension to be paid (100% in the case of self-employed persons with at least one dependent worker, with any self-employed or salaried job). It requires access to retirement at ordinary age having reached 100% of the regulatory base (full pension). Requires having access to retirement at ordinary age having reached 100% of the regulatory base (full pension).
Maximum pension
In 2021, the maximum pension set by law is 2.707,49 euros gross per month (14 payments). The gross annual amount is €37.904,86. The pension is considered as earned income for tax purposes and is therefore subject to withholding tax if it exceeds the minimums set by the tax law. The gross annual amount is €37.904,86. The pension is considered as earned income for tax purposes and is therefore subject to withholding tax if it exceeds the minimums set by the tax law.
Applying for retirement
How to apply for a retirement pension
Applying for retirement is a relatively simple process, which must be carried out at the National Social Security Institute (INSS), at any of the Social Security care and information centres. The INSS is the body responsible for recognising entitlement. The INSS is the body responsible for recognising entitlement.
It is also possible to submit the application electronically through the “Your Social Security.” portal.
Deadlines
- Workers who are registered with the Social Security (working): They can apply for retirement within three months before or after the date of termination of employment. The economic effects have a maximum retroactivity of three months, so that if this period is exceeded, retirement days will begin to arise in which no pension will be paid. The economic effects have a maximum retroactivity of three months, so if this period is exceeded, retirement days would begin to arise in which no pension would be charged.
- Workers who arenot registered with the Social Security: In this case, the application must be made when the requirements are met, in this case when the corresponding legal age has been reached.
- Workers who are in a situation assimilated to registration with the Social Security (for example, having signed a special agreement with the Social Security): They must also wait until they meet the requirements.
Necessary documentation
It will only be necessary to present the following documents:
- Valid ID card.
- Family record book, in the event that the situation of a dependent spouse must be accredited when the minimum allowance has to be paid.
- The digits of the current account into which the pension is to be paid.
- The pension application form, which does not need to be completed in advance if the application is made in person.
Retirement and pension plans
Retirement and the pension plan
Retirement is the main contingency for which members request the redemption of their pension plan. In fact, it is the contingency that drives the creation of these savings instruments. In fact, it is the contingency that drives the creation of these savings instruments.
In order to be able to redeem the pension plan due to this contingency, you must be retired with the Social Security, either in ordinary, deferred or early retirement. It is at this point that the contingency is considered to have occurred. And what happens in other forms of retirement? It is at this point that the contingency is considered to have occurred. And what happens in other forms of retirement?
- In the case of active retirement and flexible retirement, the person is considered to have the status of a pensioner before the Social Security for all purposes, and could therefore apply for payment.
- In order to be able to receive it in the case of partial retirement, it is necessary that this eventuality is covered by the plan specifications.
Collection Pension Plan
How can I withdraw from my pension plan?
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 theform 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
How the pension plan will be taxed when it is redeemed
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.