CMS Expert Guide to Pensions in Spain

Spain has a two-pillar system. The first pillar is the public pension system, administered by the State and funded primarily through Social Security contributions made by both employers and employees. The second pillar is private pension provision, which is voluntary.

The public pension system operates on the principle of financial solidarity: active workers finance the pensions of those already retired. The amount of benefits is linked to the total contributions made to Social Security over the course of an individual's working life, following the principle of contributory proportionality. In this way, those who have contributed more – through higher or longer contributions – receive a higher pension.

Private pension provision in Spain can take several forms:

1. an occupational plan, where the employer is the promoter and employees are the participants;
2. an associate plan, where the promoter is a union or association and the participants are its members; or
3. a personal plan, where the promoter is a financial institution and the participants are individuals.

Occupational plans may be implemented through an insurance policy or a pension plan.

Benefits may be structured as defined benefit, defined contribution, or a combination of both.

Private pension provision is voluntary and consists of individual products, as each person can decide whether or not to participate and holds their own pension plan.

There is no general obligation to provide private pension schemes for employees. Such obligations may be established through collective bargaining agreements, but this remains relatively uncommon.

The only requirement for a participant to establish a pension plan is legal capacity to enter into contracts; there are no age restrictions. 

A plan can be established by agreement between the promoters and the participants, who will jointly determine the stipulations and internal regulations of the plan. 

In the case of a pension plan, the parties may form a committee to seek approval from an actuarial body. Once approved, the plan is submitted to a pension fund for admission. After the plan has been accepted by the pension fund, a “control commission” is established.

Pension funds can be operated by pension fund companies (subject to administrative authorisation), insurance companies and mutual benefit societies.

There is no minimum level of contributions.

In the case of a pension plan, the financial and actuarial position must be reviewed every three years (or annually in certain cases) by an independent actuarial body appointed by the control commission. However, where pension provision is made through an insurance company, the financial structure must be reviewed in accordance with applicable insurance standards.

7. What age are benefits taken?

The ordinary retirement age, when benefits are normally taken, in 2025 is either: 65 years of age, if the participant has contributed for more than 38 years and three months; or 66 years and eight months, if the participant has contributed for less than 38 years and three months. 

In the case of early retirement at the employee’s request, the following requirements must be met in 2025:

1. The individual must be no more than two years younger than the ordinary retirement age; and
2. A minimum effective contribution period of 35 years is required.

In the case of early retirement due to involuntary termination of employment, the following requirements apply in 2025:

1. The individual must be no more than four years younger than the ordinary retirement age; and
2. A minimum effective contribution period of 33 years is required.

Employers and/or participants, depending on the terms of the plan or policy.

There are no specific tax registration requirements.

No. However, in certain circumstances, employer contributions are treated as employment income and subject to income tax. In such cases, the employee may apply for tax relief, subject to specific limits.

Yes. When an individual withdraws funds from a pension plan at the due date, the funds (including accumulated investment returns) are taxed as employment income.

12. Are benefits taxed?

Yes. Benefits are treated as employment income and are subject to income tax. The applicable tax rate varies depending on the individual’s income and ranges from approximately 18% to 54%.

Employer contributions to pension plans are deductible expenses for corporate tax purposes. Additionally, a further deduction may be available to employers subject to Corporate Income Tax in respect of contributions made for employees earning less than EUR 27,000 per year.

Tax benefits are also available for contributions made to pension plans on behalf of individuals with a recognised degree of disability or incapacity, and for contributions made in favour of a spouse whose annual employment or business income is less than EUR 8,000.

There is a cap on combined employer and employee contributions to pension plans. The maximum allowable contribution is the lower of: (a) EUR 1,500 per participant per year (this limit may be increased to EUR 4,250 or EUR 8,500 in certain circumstances); or (b) 30% of the total employment income and income from business activities earned during the fiscal year. Contributions exceeding these limits may be subject to penalties.

The regulator is the Spanish General Directorate of Insurance and Pension Funds (DGSFP), which falls under the Spanish Ministry of Economy, Industry and Competitiveness. The DGSFP has broad authority to ensure compliance with applicable laws by pension funds, pension providers, control commissions and actuarial bodies.

Pension providers have extensive obligations to report information on an annual and quarterly basis. In addition, the DGSFP may request further information from all relevant parties.

The DGSFP supervises failed or insolvent funds and, where necessary, may revoke a fund’s administrative authorisation and require its dissolution or liquidation, including that of the pension provider. It may also impose special control measures.

Discrimination on the grounds of age, sex, sexual orientation, disability, race, religion, and part-time or fixed-term worker status is prohibited. However, a scheme may require an employee to have two years’ service with the employer before being permitted to join. 

Where pension provision is implemented through a pension plan, all participants acquire vested rights depending on the type of plan (i.e. defined benefit or defined contribution and the level of funding). A participant who leaves the plan may request a transfer of their funds to another pension scheme. In exceptional cases, such as long-term unemployment (subject to specific conditions) or serious illness, benefits may be taken before reaching retirement age. 

Where pension provision is made via an insurance policy, employees do not generally have vested rights. This means they are not be entitled to recover contributions made by themselves or on their behalf by the employer, unless expressly permitted under the terms of the policy or under specific circumstances.

Participants retain the rights they have acquired while the pension plan is in force. These are known as “consolidated rights”.

Some of the scenarios that allow for early redemption of the funds include: (i) early retirement (if the conditions for it are met); (ii) permanent disability or incapacity; (iii) death; or (iv) long-term unemployment, among others.

Yes. Occupational pension plans promoted by foreign companies within the EU may be integrated with pension funds authorised and registered in Spain, and vice versa.

Although codetermination is not fully implemented in Spain, mechanisms exist to ensure worker representation in the management of occupational pension plans. As noted, the law requires the establishment of a control commission, which must include worker representatives.

N/A. 

Yes, the requirements vary depending on the type of plan:

• Occupational plans can only be switched upon termination of the plan or, if permitted by the plan, upon termination of employment.
• Associate plans can be switched if the promoter loses its membership, the plan is terminated, or the member chooses to do so.
• Personal plans can be switched if the plan is terminated or the member elects to do so.