Pensions in Spain

Until recent years, supplementary or private pensions were unusual in Spain.  With the long-term future of state pensions in doubt and attempts by the government to encourage company and private pensions, many people are taking out supplementary pensions.

Many employees in Spain pay into private insurance schemes which top up their social security benefits, which may be combined with a private health insurance scheme. In many cases, the combined state and supplementary pensions are equal to an employee’s final salary.  It is important for anyone who does not qualify for a state pension or who will receive only the minimum state to contribute to a supplementary or private pension fund.

Note that you must contribute to Spain social security for 15 years before you are entitled to a state pension. There are a wide range of private pension funds in Spain and it is also possible to continue to contribute to a personal pension plan abroad, or to an offshore fund. However, contributions to foreign pension schemes are not tax deductible in Spain, although many major European private pension companies have offices or agents in Spain.

Most experts advise that the best pension scheme for most people is one that does not require fixed monthly payments, but allows you to pay irregular lump sums. In Spain, there is usually a small minimum monthly payment, possibly as low as 50€ a month and lump sum contributions are usually from 600€. A pension should be index linked to insure that it keeps pace with inflation. With an index-linked policy, capital is tax free after contributions have been made for 15 years, with an increasing scale of tax penalties for early surrender.

If you have an offshore pension, there is no tax relief, but all benefits are paid tax free. Where applicable annual pension contributions in to a company pension plan are tax-deductible for Spanish taxpayers, amounts range from 8,000€ (for taxpayers under 52) to 25,250€, the maximum deduction for tax payers over 65.