The recent regulation that allows pension plan contributions to be withdrawn after 10 years of contribution has generated some interest among many savers in Spain. However, at inbestMe we have observed that, at the moment, we are not receiving many requests for early withdrawals, which we consider to be good news. This behaviour reflects that our clients are committed to their retirement goals and that they understand the importance of following their long-term plan.
What has changed?
Until now, pension plans in Spain could only be withdrawn in very specific situations: retirement, death, long-term unemployment or disability, or in very special situations such as Covid or the Dana de Valencia. However, with this new regulation, it is possible to withdraw contributions made from 10 years after their entry. For example, in 2025, contributions made in 2015 or earlier can be withdrawn, and in the following years, contributions made a decade ago will be progressively unblocked. This measure allows savers to have access to their money earlier, although it is still key to evaluate whether an early withdrawal fits with their long-term financial objectives.
Retirement: a goal that should not be lost sight of
Pension plans were created as a complement to public pensions, with the aim of guaranteeing an adequate quality of life at a crucial stage. Depending on each person’s situation, at the time of retirement and after no longer receiving a salary or income as a self-employed person, there is a high probability that we will need to supplement the pension to which we are entitled from Social Security. This is the main objective for which private pension plans (or company pension plans) were created.
When you withdraw money early, you reduce your accumulated savings and, more importantly, you limit the effect of compound interest, which is the main driver of long-term growth. This is the key aspect to consider: we want to still have that potential capital available at the time of our retirement.
The following chart shows the impact of a gross withdrawal required to obtain €20,000 net, considering a 30% withholding tax for personal income tax. In this case, the gross amount amounts to €28,571, which means that more than €8,571 is allocated to taxes.
Beyond the tax impact that we discuss below, in the simulation we have done, the retiree who decides to withdraw would accumulate just over €325,000 instead of €403,000, or €78,000 less at the time of retirement.
Key decision: Although flexibility is useful in certain situations, it is essential not to lose sight of the main objective of your pension plan: to build solid savings for retirement that will allow us a complementary income to the potential retirement pension from social security. On the other hand, the new situation undoubtedly brings certain benefits for savers.
Benefits for savers
This measure expands the possibilities of managing savings in a more personalized or flexible way. Some of the most relevant benefits include:
- Greater liquidity: Now, pension plans are no longer as “constrained” as before, which allows access to money not only in pre-established cases (retirement, long-term unemployment…), but also in the event of unforeseen events or changes in personal financial planning after 10 years of contribution. It is obvious that in 10 years, each person’s life and objectives can change significantly.
- Incentive for savings: Knowing that contributions are not all “blocked” in the long term can encourage more people to start or increase their savings in pension plans.
This, however, can be contradictory. The new regulations mean more flexibility for savers, but also a test of discipline and commitment to their retirement goals. Withdrawing funds early may seem like an opportunity, but we must not forget that the true purpose of a pension plan is to guarantee your financial well-being when you need it most, when you no longer have income from your work.
Even so, and certainly if a more important objective than retirement appears on our path, this new flexibility can be of great help. The client can also cover the retirement objective with our index fund portfolios with identical profitability prospects: on the one hand, there will be no tax deductions (although there will be the benefits of tax deferral), but on the other hand, there will be more flexibility (they are not subject to the €1,500 limit) and no restrictions on liquidity (there is no limit at any time).
n the end, the important thing is that the client feels comfortable and is invested for as long as possible, which will help them achieve their financial goals.
What are the tax implications of withdrawing your pension plan?
As we saw above, taxes can have a significant effect on the final balance, reducing not only the amount available immediately upon surrender, but also the future growth of the plan due to the smaller base on which the benefits of compound interest operate.
Withdrawing from a pension plan is taxed as work income, which can significantly increase your personal income tax base. Withdrawing large amounts at once, as in this simulation, after 10 years, can lead you to higher tax brackets. In the previous example we saw that to have €20,000 net available we had to pay €28,571 assuming a 30% withholding (which is applied when requesting the withdrawal). But the effect can be much greater. Adding this money as an increased base can make us jump to much higher brackets of, for example, 35% for all our income when filing our final tax return.
Therefore, planning well how and when to make a withdrawal is crucial. This is what is recommended to do when one retires. Withdrawing staggered amounts or in the form of a periodic income is crucial to minimize the tax impact. This is one of the benefits of doing so once retired since we are deferring the withdrawal to years with, most likely, lower income, reducing the tax bill (the percentage of taxes to be paid in the IRPF is progressive and therefore lower the lower the income).
On the other hand, some participants can benefit from contributions made before 01/01/2007, which have a 40% reduction.
We remind you that inbestMe cannot provide tax advice. If you have questions about tax matters, we strongly recommend that you consult a tax advisor.
How does the redemption process work at inbestMe?
We have detected that some financial institutions are creating obstacles, and even hindering, the possibility of carrying out these withdrawals. At inbestMe, we firmly believe that the money belongs to the client and that they should have full control over it.
Of course, we consider it essential to reflect on all of the above: assess the impact on retirement, the effect of compound interest and the tax burden. However, once the client has made a well-informed decision, it must be respected. No one knows their needs, priorities and financial goals better than them.
For those who decide to make a withdrawal, the process at inbestMe is manual, as we want to ensure that it is carried out precisely in a controlled and thoughtful manner:
- Contact us. If you are considering a withdrawal, you can write to us or call us to start the process.
- Personalized request. Our team will help you process the withdrawal request.
- Information: once the information has been consulted, the client is notified of what they can withdraw in advance (contributions of more than 10 years), and the potential deduction of 40%.
- Example of information we provide (per pension plan):
- Available balance for early withdrawal (1): €2,500
- Balance with right to reduction (2): €500
- (1) Contributions over 10 years
- (2) Balance with a 40% reduction only for contributions made before 2006.
- Example of information we provide (per pension plan):
- Analysis by the client: the client analyses the information. The client will have to estimate the potential withholding on their own (see table below which may be helpful).
- Review and confirmation. After their analysis, the client finally notifies us of the amount they wish to withdraw (the maximum being the amount mentioned as “available balance for early withdrawal”).
- Transfer. Once the settlement has been executed, the net amount is sent, after tax withholding if applicable.
At inbestMe, our commitment is to help you make informed decisions aligned with your financial goals. If you have any questions, we are here to help you evaluate all the options by contacting our customer service team.
If your financial institution prevents or hinders this transfer, we are at your disposal so that once your pension plan has been transferred to inbestMe you can withdraw the available balance to make the early withdrawal.
Appendix: Personal Income Tax Bases for 2025
These percentages are applicable at the state level. The autonomous communities have the ability to modify the regional rates, so it is advisable to consult the specific Personal Income Tax tables to obtain precise information on the rates applicable in your region.
To calculate the tax payable, the rate corresponding to each section of the tax base is applied. For example, if your tax base is €40,000, it would be calculated as follows:
- The first €12,450 at 19%: €2,365.50
- From €12,451 to €20,200 (€7,750) at 24%: €1,860
- From €20,201 to €35,200 (€15,000) at 30%: €4,500
- From €35,201 to €40,000 (€4,800) at 37%: €1,776
Total to pay: €2,365.50 + €1,860 + €4,500 + €1,776 = €10,502
Resulting rate: 10,502/40,000 = 26.25%
Remember that this is a simplified calculation and that there are deductions and reductions that may affect the final amount to be paid when filing your personal income tax return. It is advisable to consult a tax advisor to obtain a more precise estimate adapted to your personal situation.
