Editor’s note: This article was first published in June 2013 and describes Spanish pension-plan rules at that time. They have changed since: the early-withdrawal option under the 2013 anti-eviction law was temporary, and from 2025 savers can withdraw contributions more than ten years old.
Rather than giving my opinion on taking out a pension plan yet again (you already know I’m not a fan of this savings or investment product), today we answer a few questions about when you can cash in a pension plan, since there have been some changes.
As you know, a pension plan is taken out with the long term in mind, and it is an illiquid savings product. In other words, you sign up for it on the understanding that you will only have access to that money once you reach retirement. There are some exceptions, although, as you would expect, most of them come with a catch. Getting your money out of a pension plan can turn into a hard fight in some cases. What circumstances have to apply for you to take money out of a pension plan before retirement age?
As a new development, the anti-eviction law passed by the government now allows you to cash in a pension plan if you are going through a court or administrative enforcement procedure over a property because of non-payment, *provided the money is enough to stop the home from being sold. The other cases are as follows:
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Obviously, on retirement, since that is what the pension plan is taken out for.
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Permanent incapacity for work.
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Death: in this case the money in the pension plan goes to the beneficiaries.
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Severe dependency or high dependency of the plan holder, *as regulated by Spain’s Dependency Act (Ley de Promoción de la Autonomía Personal y Atención a las personas en situación de dependencia).
Then there would be two more exceptions under which we could get hold of the money in our pension plan, though not without obstacles and drawbacks: serious illness and long-term unemployment.
* I know of a man with cancer who tried to cash in his pension plan and died before he managed to (if that isn’t a serious illness…)
What counts as a serious illness for the purpose of getting our money back:
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Any illness or injury that temporarily prevents the person from doing their usual job or activity for a continuous period of at least three months and that requires major surgery or treatment in a hospital.
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Any illness or injury with permanent after-effects that partially limit or totally prevent the person from doing their usual job or activity, or that leave them unable to carry out any job or activity at all, whether or not, in this case, they need help from other people for the most basic activities of daily life.
* As long as the serious illness means a drop in the plan holder’s disposable income, because of higher expenses or lower earnings, and they have not received any permanent incapacity benefit.
Requirements for cashing in a pension plan because of long-term unemployment:
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Being legally unemployed.
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Not being entitled to contributory unemployment benefit, or having used it up.
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Being registered as a job seeker at the time you apply to receive the pension plan money. *Without interruption for at least 12 months.
(Read also: Pension plan? I’ll pass. 2 more profitable alternatives)
As you can see, there are far too many *asterisks standing between you and your money, and that is why, in my personal view, this savings product isn’t worth it. Besides the drawbacks when it comes to getting your money out in case of need, not even all the tax advantages it offers will make up for its poor returns, to the point that it always trails inflation. You also have to bear in mind that when you cash it in, even at retirement, if you don’t get proper advice you will lose part of your money, because a pension plan doesn’t spare you from paying the tax office if you decide to take it all out in one go.
