From 1 January 2025, pension plans that are more than 10 years old can be redeemed early
Introduction
On 1 January 2025, the possibility of early access to vested rights, i.e. without any contingency, came into force for pension plans and other supplementary social welfare systems (such as insured welfare plans, company welfare plans and insurance contracts arranged with mutual welfare societies) corresponding to contributions made at least 10 years previously.
Remember that until 31 December 2024, in order to redeem a pension plan, you had to prove that you were long-term unemployed, had suffered a redundancy plan, were severely dependent or had a serious illness. From 2025 onwards, no accreditation is required.
From 1 January 2025, contributions made up to 31 January 2015 will be available, and so on year after year.
| Provisions made | Available in |
| Up to 31 January 2015 | 2025 |
| Up to 31 January 2016 | 2026 |
| Up to 31 January 2017 | 2027 |
| Up to 31 January 2018 | 2028 |
| Up to 31 January 2019 | 2029 |
It seems that there is no other limit whatsoever. The perception of consolidated rights in this case will be compatible with the making of contributions to pension plans for likely contingencies.
Taxation
The redemption of the pension plan is taxed as personal income at the marginal rate, integrated into the general base and subject to withholding. It should be borne in mind that with the redemption, two scenarios may occur for the taxpayer:
1- that the marginal rate increases, possibly jumping a tax bracket;
2- that this income is treated as income from a second payer on the tax return, which means that
to make the declaration if it exceeds certain amounts.
The Income Tax Act establishes that a 40% reduction can be applied to the amounts received in the form of capital corresponding to contributions to pension plans contracted up to 31 December 2006, provided that they meet the established requirements. The question now is whether the 40% reduction can be applied to these early surrenders.
The law does not explicitly state that this reduction will only be applied to common contingencies such as:
- retirement,
- unemployment
- or serious illness, but it seems that the tax authorities have always interpreted it in this way.
According to several binding consultations from the DGT, the 40% reduction applies when the redemption occurs due to a contingency legally provided for in pension plans: retirement, disability, death, dependency, long-term unemployment or serious illness.
Redemption due to the new 10-year seniority requirement (effective from 2025) is not considered a legally provided contingency, but an exceptional possibility of liquidity.
The DGT seems to answer as follows: The 40% reduction may be applied to the amounts received as an advance payment, provided that the following requirements are met:
- that the amounts drawn down come from contributions made up to 31 December 2006;
- that they are received in the form of capital; and
- that they are collected in the financial year in which the contingency occurs or in the following two financial years, raising the question of when the contingency should be understood to have occurred in these cases.
It seems that the DGT considers that in cases of ‘early withdrawal’ the contingency occurs when the contributions are 10 years old and, in addition, the participant has expressly requested the withdrawal of vested rights. Remember that there are different options for redeeming a pension plan, each with its own taxation. These are:
- In the form of capital: this type of redemption means that all the funds in the plan are collected in one go.
- In the form of a regular income: a regular amount can be fixed every month. The money can be taken monthly, quarterly, half-yearly or annually.
- In a mixed form: if you decide to combine the two previous methods, this is also possible. You can choose to withdraw part of the pension plan funds at once in the form of capital and another part month by month, in the form of income.
- In the form of a withdrawal: this means that the funds are received at the beneficiary’s request without any regular periodicity.
If you have any questions about this, please do not hesitate to contact us, by calling Carles Monfort Codina or sending an email to cmc@btsasociados.com. We will be delighted to help you.