The Spanish pension system for expats

Learn about the Spanish pension system: from how to receive a pension as an expat to why it’s important to have a private pension plan

Jale

8 minute read

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Updated on 31 Jul 2023

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Living

As a young working expat, thinking about your retirement's an essential step toward guaranteeing a comfortable future. And to have a comfortable and secure retirement, it's important to plan beforehand. So whether you're already working in Spain or are curious about retiring as an expat in Spain, it’ll pay off to be well-prepared.

Use this guide to understand the layers of the Spanish pension system, requirements to become eligible for it, benefits of having a pension plan, taxes and deductions and documents you need to apply for a pension.

The Spanish pension system's divided into 3 layers.

1. State pension
2. Occupational pension
3. Private pension

Spanish state pension

The state pension's a part of social security in Spain. All working Spanish residents can benefit from it once they reach the official retirement age — 66 years and 2 months.

The pension rate you'll receive changes based on how much you’ve contributed to social security. Suppose you've contributed to social security for at least 15 years (including the two years before applying). In that case, you'll receive a minimum state pension rate. If you've contributed for 37.5 years, you'll receive a full rate and can even retire at 65.

From 2027, you need to have contributed to social security for at least 38.5 years to receive the full pension rate.

The state pension is divided into 2:

1. Contributory pension: A pension plan that receives contributions from both employees and employers as long as they work together. Employees contribute 4.7% of salary while employers contribute 23.6%. Freelancers pay for all of it by themselves.

2. Non-contributory pension: Low-income families and people with disabilities who haven't earned enough to contribute to social security are eligible for this retirement plan. Yearly income should be less than €5,639.20. To receive it on low-income grounds, you have to be 65 years old and must’ve lived in Spain for 10 years, of which the last 2 consecutive years must’ve been in Spain. To become eligible for a non-contributory invalidity pension, you’ve to be a resident of Spain for 5 years, with the last 2 consecutive years spent in Spain.

Occupational pension

An occupational pension's a type of retirement plan developed and financed by companies. Under this pension system, employers themselves set the conditions such as age limits and income requirements. It’s good to know that especially big and international companies offer such retirement plans for their employees.

There're 2 types of occupational pension:

1. Defined benefit or DB: Employer alone covers all of the pension plans.

2. Defined contribution or DC: Both employer and employee finance the pension plan. The difference from state contributory pension is that employers pay a significant amount of it (65%-80%) while employees pay the remaining amount. You can choose a minimum, medium or maximum pension rate based on how much you contribute.

Private pension

A private pension, also known as an individual pension plan, is a plan you can use to save money for retirement. Any contribution of up to €1,500 per year to your private pension plan will be tax-deductible. Any amount above that will be taxed. Overall, contributions to individual pension plans can’t exceed 30% of your net income annually.

Private pension plans offer a range of benefits, such as you can withdraw your money whenever you want, put aside money tax-free and earn compound interest.

Currently, you have to be 66 years and 2 months old to become eligible for retirement in Spain. This increases by 2 months every year, until reaching 67 by 2027.

In addition to regular retirement, you can also have:

1. Early retirement: At age 63, you can retire if you've contributed 35 years to social security.
2. Partial retirement: After turning 60, you can start working part-time and receive your pension.
3. Flexible retirement: You can go back to work even if you've already retired. The only condition is you can't work with your previous employer.
4. Retirement in special situations: If you're a disabled worker or work as a railway worker, firefighter, flight personnel, etc. you can retire from age 60 (even from 52 if necessary)

The average pension you'll receive depends on which autonomous community you live in. But the maximum state pension nationwide is €2,617.53, and the minimum amount is €642.90. On average, this number is just over €1,100 per month.

Average retirement pensions in Spain:

If you satisfy the requirements of the contributory state pension rate, you can receive a pension in cases of injury. Then you'll receive:

• 55% - 75% of the full pension if you can't do your own work
• 100% of the full pension if you can't do any work

Especially when you're young, you might feel like retirement's too far away to worry about. But like all of our grandparents would say, it'll be here in a blink of an eye.

Even if Spain's one of the most affordable countries in the world, a state pension shouldn't be your only income during your retirement.

Currently, the Spanish state pension is financed with contributions: by employers and employees. This means current retirees receive their pensions from your current pension contributions. And you'll get your pension from the generation after you and so on.

But with a 15.67% unemployment rate and an increasingly aging population, the future of public pensions is shaky in Spain. So you’ve to think about complementing state pension with a private individual plan.

Today, a young single person can live comfortably with €1,700 per month in Spain. But when you get older, you'll have more expenses like a mortgage, childcare, and health conditions. All of these will cost a lot and a salary of €1,700 will mean you’ll contribute less and less to your retirement via social security contributions.

You might ask, what if you're earning a lot more than the average salary in Spain? Then it's true you're also contributing a lot to social security. But remember, your pension's funding the retired today. Your state pension is also capped at a maximum of €2,617.53. So if you’re used to a high living standard, it’s essential to have a private pension with good interest rates to keep up with inflation.

Ultimately, it's important to map out your retirement and individual pension plan from a young age. The younger you start, the more time you'll have to save.

Pensions payments are subject to income tax in Spain; the rates vary between 8% and 40%. If you’re a resident in Spain and are receiving your pension from another EU country, the UK, or the US, then you’ll pay income tax on your pension only in Spain thanks to the double tax treaty.

You can benefit from a tax deduction on your pension payment. Tax deduction rate changes depending on the autonomous community you live in.

In addition, there's also a tax deduction depending on your age. The age deduction is €1,150 from age 65 and €1,140 from age 75.

Applying for retirement's a very simple process. You can start your application 3 months before or 3 months after your employment contract ends. Just collect all the documents below and visit the Social Security office (INSS) in your city.

1. Your resident card
2. Passport
3. Application form
4. NIE number

In addition to these, you’ve to bring proof of your eligibility if you're applying for early retirement or disability pension.

Depending on your nationality, employment years, and country of employment, when and how much pension you'll receive will change. In some cases, you might be entitled to receive a pension from more than one country; you'll then receive your pension from that country when you reach that country's minimum legal retirement age.

I am an EU/EEA citizen working in Spain. How can I transfer my pension to Spain?

If you worked in Spain and another EU country, you can receive a pension from both countries. The amount you'll receive depends on the years you worked there and how much you contributed to their pension scheme. Either way, there’re 2 ways to determine the pension payment in the EU and whichever amount is higher, you'll receive that.

• Pro-rata benefit is the amount that should be paid for the years worked in the country. It's calculated based on the theoretical amount. The theoretical amount is how much pension you would receive had you worked only in that country for the entire time.

• The national rate is the amount you're entitled to receive if you worked enough to receive the minimum national pension.

Let us give you an example to make it clearer: Imagine you worked in Spain for 20 years and in France for 10 years. Both Spain and France require you to work at least 15 years to qualify for a minimum national pension. In this case, you're entitled to receive a minimum national pension from Spain and a pro-rata benefit from France.

• So Spain will calculate both pro-rata benefit and minimum national (state) pension. Let's say you're entitled to a €1,000 national pension and a €1,200 pro-rata benefit. Then Spain will pay you pro-rata benefit cause it's higher.

• France won't calculate the national pension rate because you didn't work long enough to receive it. Authorities will only calculate pro-rata benefit: let's say it's equal to €800.

So, you'll receive a total of €2,000 from both countries in the end.

I am a non-EU citizen retiring in Spain. What happens to my pension in Spain?

• If you worked in Spain for 15 years, you're entitled to receive the minimum national rate.

• If you worked in Spain for 36 years, you'll receive the full Spanish pension rate.

• If you worked in Spain and another EU country, you're entitled to receive a pension with the same principles as EU citizens. So same calculations above apply here.

  I am a non-EU citizen retiring abroad. What happens to my Spanish pension?

• If you worked in Spain and in one of the countries where Spain has a pension treaty, you're entitled to receive a pension from both.

• If you worked in Spain for a minimum of 15 years and moved to another country, you can still receive your minimum national pension from Spain.

I am a retiree moving to Spain. Can I transfer my pension to Spain?

Your country of origin will determine whether you can transfer your pension to Spain.

• If you're from an EU country and want to retire in Spain, you can transfer your pension to Spain.

• If you're from the UK, you can transfer your pension to Spain with the Qualifying Recognised Overseas Pension Scheme (QROPS). It's still possible even after Brexit.

• If you're from a non-EU country, you’ve to check with your national pension institution if you can transfer your pension to Spain.

• If you're from the USA or a non-EU country with a pension treaty with Spain, you can transfer your pension.

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