The pension system in Spain

All Spanish residents make mandatory social security contributions, which pay for public healthcare, education, and, of course, retirement funds. If you’ve lived in Spain all your life, collecting your pension will be relatively straightforward. But what are the rules when you’re an expat?

Learn more about the Spanish pension system, including eligibility rules and how to transfer foreign pensions, by reading the following sections:

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The Spanish pension system

The Spanish Ministry of Inclusion, Security, and Migration (Ministerio de Inclusion, Seguridad Social y Migraciones) oversees the state pension in Spain. The government spends around 11.4% of GDP on pensions, above the global OECD average of 8.2%.

Spain operates a three-pillar pension system that consists of:

• The Spanish state pension (first pillar) is funded through compulsory contributions and is available to all residents in Spain; it also covers survivors’ pensions.
• Company and employee pensions (second pillar), where conditions and availability depend on the employer.
• Private pensions (third pillar) are voluntary and typically have more flexible conditions than the state Spanish pension. For example, some allow you to withdraw your savings before the Spanish pension age.

The first pillar covers two categories under which people can claim benefits. These are:

• a contributory pension based on employment and social security contributions in Spain;
• a non-contributory pension to ensure basic economic provision for residents who don’t qualify for other pension support. This is mainly for low-income households and those with disabilities

Although pension rates in Spain are generous, government reforms in recent years have aimed to reduce reliance on the state pension and boost the second and third pillars of the Spanish pension system. These include increasing the state pension age and tightening up the requirements for early retirement.

However, some experts argue the reforms aren’t doning enough to encourage people to invest more in the second and third pillars.

Who is eligible for pensions in Spain?

Pension age in Spain

The legal retirement age in Spain depends on the year you plan to retire, and the years you have been paying social security contributions. The country aims to increase the legal retirement age to 67 by 2027. As such, the following ages and contribution rates apply:

While this seems particularly black and white, there are also exceptions.

For example, if you are 61, have contributed for at least 33 years, and are fired from your job, you may be eligible for early retirement. Similarly, some workers may choose voluntary early retirement, partial retirement, or flexible retirement, provided they meet all requirements.

In addition, Spain allows certain groups of employees – for example, workers with disabilities or those in hazardous jobs – to claim a full Spanish pension from as early as 52. You can review all eligibility requirements on the government website.

However, you may also want to work past the statutory pension age. If so, Spain offers the following incentives to workers who delay their retirement:

• An additional 4% increase of your pension for each full year of contributions made between reaching the pension age and the age you actually retire
• A lump sum amount for each full year of contributions made between reaching the retirement age and the age you stop working. This single payment ranges from roughly €4,786 to €12,060.
• A combination of the previous two

You should contact your employer to see if this is available to you.

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Who can claim a state pension in Spain?

To qualify for the minimum state pension, you must have worked and paid Spanish social security contributions for at least 15 years. Additionally, at least two of these years must be within the 15-year period immediately preceding the pension claim.

Some exceptions, such as maternity leave, unemployment, or certain workplace hazards, can count towards your contribution period.

However, to claim a full Spanish pension rate, you must have worked and contributed for at least 38 years. This will rise to 38 years and six months by 2027.

Self-employed workers in Spain can claim a pension, providing they have registered and paid social security contributions into Spain’s self-employed social security fund.

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What if you’re not eligible for a full pension?

If you’re not eligible for a full Spanish pension, you may claim one at a reduced rate, as long as you’ve made the minimum contributions. However, if you haven’t made sufficient contributions due to:

• Low income – you may be able to claim the non-contributory pension in Spain if you meet the requirements. See the below section for more information.
• Not having been living and working in Spain for a long enough period, you will not be able to claim any state pension in Spain

EU/EFTA citizens and those from countries with pension agreements with Spain will be able to transfer contributions made in their home countries to count towards their Spanish pension eligibility. Others will have to rely on private pensions, occupational pensions, or personal savings.

Pensions in Spain for expats

If you have moved to Spain from another EU/EFTA country, your insurance contributions in other EU member states can count towards calculating your eligibility for a Spanish pension.

For example, if you only worked in Spain for 10 years but previously worked in the Netherlands for 20 years, you can qualify for a pro-rata Spanish pension as well as a pro-rata Dutch pension. For example, you will receive a reduced pension rate only for the years you worked.

You will start receiving these pensions once you reach the legal pension age in each country. This means the amount you receive may vary if these pension ages are different. The country where you are living is responsible for processing your claim and bringing together your records from all the countries you have worked in. So if you’re an EU expat living in Spain, the Spanish government will administrate your state pension.

Spain also has bilateral social security agreements with a number of non-EU countries. These provide varying conditions for transferring pension and social security benefits depending on the country.

Transferring your pension to Spain

You may also be able to transfer private pension earnings without incurring charges through an overseas pension scheme. For UK pensioners in Spain, this is possible through a Qualifying Recognised Overseas Pension Scheme (QROPS) commonly used by UK citizens who move abroad with private pension funds.

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In some cases, there may be Spanish tax allowances for pensioners to attract them to withdraw an annuity pension (anualidad) over lump sum payouts (suma global) or other pension options.

If you are moving to Spain and have a private pension in your home country, seek advice from your pension provider or a financial expert to discuss what your options are and how best to plan your retirement funds. Advisors who can help you include:

• AES
• SJB Global

Spanish pension rates and contributions

Despite recent reforms, the earnings-related contributory Spanish pension rates remain among the highest in Europe. Pre-tax pension rates for a full pension in Spain are over 81% of gross annual salary. This is the highest among EU countries.

Spanish pensions are funded by contributions from employees at around 4.7% of their salary. Employers contribute 23.6% of an employee’s salary. Self-employed workers are responsible for paying all of their contributions, meaning that they personally pay more towards their Spanish pension.

Spanish pension rates are calculated on how much you earn and how many years you worked and made contributions in Spain. If you work the minimum 15 years requirement, you will get at least 50% of the maximum payout. This rises in percentage for each additional year worked, reaching a maximum 100% for those who worked 36 years (rising to 37 years by 2027).

Spain has a minimum and maximum amount on its state pension. The maximum amount in 2019 was €2,617.53. The minimum was €642.90 for those with a working spouse and €835.80 for those with a dependent spouse. There are 14 payments a year.

Average state pensions in Spain are €1,205 for men and €750 for women.

Recent pension reforms also mean that the Spanish pension system is no longer directly linked to inflation. Benefits are also linked to ‘sustainability factors’, such as life expectancy, number of pensioners, and economic environment.

You can calculate your Spanish pension rates on the government social security website. Alternatively, you can use an online pension calculator.

Taxes on pensions in Spain

Pensions in Spain are taxed at progressive rates between 8-40%. Contributions made towards Spanish pensions are tax-deductible.

Tax benefits are also available through private third-pillar pension plans known as Ahorro 5. These allow savings up to €5,000 that can be claimed after five years onward; there is a guarantee of 85% and no taxes before five years.

Pensioners over 65 who sell property assets in Spain can access another tax incentive. Gains are taxed for real estate sales up to €240,000 a year if an annuity pension plan is taken out.

Supplementary pensions in Spain

Although the state has tried to incentivize occupational and private pensions in recent years, they are still not as well developed as in many other countries. Coverage levels are around 54% of the working population, but contribution rates from those participating are low.

Occupational pensions are mostly available through larger and international companies, with only around 7% of Spanish employers offering plans at present. Although traditionally financed by the employer, these are becoming more contributions-based, with employees contributing between 20-35%.

Employer contributions to occupational pension plans are capped at around €8,000 per year. Annual contributions by both employer and employee are tax-deductible up to a limit of €8,000.

Retirees can choose between three payment options: annuities, lump sums, or a combination of both.

Other options are private pensions in Spain via a pension fund or direct insurance, which enable participants to make individual contributions at an agreed rate. You can access these through financial institutions such as banks and insurance companies.

Spanish tax legislation on private pensions allows tax-free annual contributions up to €10,000 or 30% of your salary (whichever is lower). If you are over 50, this rises to €12,000 or 50% of salary. Residents in Spain can claim this tax exemption on their annual tax return.

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Non-contributory pensions in Spain

Those who are not eligible for the contribution-based Spanish pension and who do not have sufficient income can get a basic pension in Spain via the Compulsory Old Age and Disability Insurance – or Seguro Obligatorio de Vejez e Invalidez (SOVI) – which is not dependent on a contributory system but based on need.

This is a means-tested pension available to all Spanish citizens aged over 65, or 60 in the case of disabilities, earning below a threshold (€5,164.60 per year in 2018). Foreign residents can claim a non-contributory pension if they have lived in Spain for at least 10 of the last 15 years (including the two years prior to making a claim) and meet all other requirements.

Your pension rate will depend on your income and number of dependents, but it will be between 25-100% of the threshold amount. The current maximum amount is just over €430 a month if you are not drawing any other pension and have no other regular sources of income.

Because this is a means-tested pension, non-work-related finances such as savings and partner income are also considered when assessing eligibility. Claims are handled by each Regional pension authorities handle claims.

You can find out where to make an application here.

Other pensions in Spain

Survivor’s pension

In the event of someone passing away, a survivor’s pension can be paid to a surviving spouse or children under the Spanish pension system. This is providing the deceased made the minimum 15 years of social security contributions. The spouse remains eligible as long as he/she has not remarried.

The widow or widower’s pension is calculated according to various factors including employment status of the deceased at time of death, cause of death, spouse income, and whether there are dependents. The amount will be between 52-70% of the deceased’s pension entitlement.

Surviving children aged under 21 (or those with disabilities over that age) are entitled to an orphan’s pension if they lose a parent. This is calculated at 20% of the deceased’s pension entitlement, or up to 70% if the child loses both parents. This entitlement ends if the child is adopted or married.

Disability pension

There are four types of state disability pension available in Spain:

• Partial permanent disablement – when the disability reduces the worker’s ability to carry out normal work by at least 33%. This results in a lump sum payment equal to 24 months of the base pension rate.
• Total and permanent disability – when the worker can no longer perform their job due to a disability, but may still be able to do other work. They receive between 55-75% of the full pension amount.
• Complete permanent disability – when the worker’s disability stops them from performing any job, the rate is 100% of the pension.
• Serious invalidity – when the worker can no longer perform any job and requires care or assistance to carry out daily functions due to the nature of their disability, they receive 100% of the pension rate. There is an additional supplement to help cover care costs.

Both survivor and disability pensions are also available as non-contributory pensions through SOVI at a lower rate for those not eligible for contributory benefits.

Applying for your pension in Spain

To apply for a Spanish pension, you must visit your local INSS to submit a pension application form and necessary documents within three months before or after your last day of work.

Once you have completed this, the INSS will process the application. They will backdate pension payments to your last working day up to a maximum of three months. You can access application forms on the government pensions website.

You will need to provide the following along with your application:

• Passport or ID card
• Valid Spanish ID number;
• If claiming a special pension or an early retirement pension, proof that you meet the eligibility requirements for this pension

If at any point your financial or family situation changes – for example, if you remarry – you need to report such changes to the local authority that handles your Spanish pension. Financial and family variations can affect your pension rate in Spain, and you may receive undue benefits which you will typically have to pay back.

Pension advice in Spain

Because of the various different pension options available in Spain, it makes sense to seek professional advice before planning your Spanish retirement income.

Useful resources

• Social security office – information on pensions and social security in Spain
• IMSERSO (Instituto de Mayores y Servicios Sociales)– Spanish institute for the elderly and social services