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Pensions for Expats in Spain

Submitted: July 2013

Spain has a state pension regime as well as a tax-efficient private pension system. Pension payouts are taxable.

The state pension age is currently 65, rising gradually to 67 by 2027 as a result of the 2011 pension reform. The state pension age will stay at 65 for individuals who have contributed for at least 38.5 years.

According to the OECD, the recent reform will slash pension spending by 3.5% of GDP over the long run.

 

Spanish state pension

Spanish state pensions are contribution-based, and contributions must be paid as part of your social security contributions. Contribution rates are available here. As state pension contributions do not attract tax relief, economic double taxation may arise.

State pension payouts depend on your assessable earnings for social security purposes (bases de cotizacion), and the payout is calculated on the last 15 years (rising gradually to 25 years by 2022). Many workers choose to pay contributions only on the applicable minimum assessable earnings in return for lower social security payouts. The rules regarding assessable earnings are complex, however, and you might wish to seek professional advice to find out what is best in your individual case.

Your number of contribution years is also taken into account, as a percentage applies on your pension payout. You need to have contributed for at least 35 years to get 100% of your pension payout. This is due to rise to 37 years by 2027.  The first 15 years qualify for a 50% payout, and this percentage increases gradually and almost linearly to 100% as you edge closer to the required contribution years.

Typically, your pension income is 80% of your final salary levels if you get the full rate. Even after the pension reform, Spanish replacement rates will remain high by international standards.

 

Expatriates and Spanish State pension

Expatriates may sometimes be strongly discriminated against by domestic pension rules. Under current law, most individuals need at least 15 qualifying years to get any state pension. EU pension rules may mitigate this, but expatriates should pay attention to this specific aspect, especially if they are not from the EU. For more information on EU pension claims, click here.

If you are not from the EU, your home country may have a social security agreement with Spain. In theory, treaty non-discrimination rules may “totalise” your contribution years into one single pool, which is then taken into account by each contracting state to calculate your pension payouts.

Spain has concluded bilateral social security agreements with Andorra, Argentina, Australia, Brazil, Canada, Chile, Colombia, the Dominican Republic, Ecuador, Japan, Morocco, Mexico, Paraguay, Peru, the Philippines, Russia, South Korea, Tunisia, Ukraine, Uruguay, the US and Venezuela. Spain is also part of a multilateral Latin American social security agreement with Bolivia, Brazil, Chile, El Salvador, Ecuador, Paraguay and Uruguay.

You might wish to check how your applicable social security agreement protects you from discrimination.

 

Benefits for Spanish resident low-income pensioners

Benefits for the elderly are primarily contribution-based. However, there are additional benefits for low-income individuals above pension age.

Under the means-tested pension system, your regional Government tops up your pension if it does not exceed €5,108.60 per year. Entitlement is based on social citizenship and it does not depend on your previous contributions. You qualify for the Spanish means-tested pension only if:

 

Spanish private pension schemes

Private pension schemes are regulated by Real Decree 1/2002. Expatriates may decide to build up a private pension pot, whereby contributions to a qualifying pension scheme may be deducted from your taxable income and the capital can grow tax-free.

Employer contributions are a taxable benefit in kind, and they are specifically non-deductible for the employer. However, employee contributions qualify for tax relief, but your annual contributions may not exceed the lower of:

An EEA pension scheme may qualify for tax relief, but you should check if your pension scheme complies with Spanish regulations.

 

International planning

If you eventually plan to emigrate from Spain, you should check how your Spanish pension payouts will be taxed. In most cases, a tax treaty will make your pension payouts taxable only in your future country of residence.

In the absence of a tax treaty, the following withholding tax rates apply to non-residents:

Spanish pension income (€)

Tax rate (%)

Up to 12,000

8

12,001 to 18,700

30

18,701 and over

40

You might wish to seek professional advice regarding cross-border pension planning. See Wealth Management for Expats in Spain.

 

 




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