Editor’s note: This article was first published in July 2010. It describes Spanish pension plan rules as of that date. Since then they have changed, including a 2014 reform (Law 26/2014) allowing withdrawal of contributions more than 10 years old from 2025, so it should not be read as current guidance.
In Spain, pension plans (planes de pensiones) are a long-term investment vehicle that, because of the crisis, many people are now trying to cash in, withdraw their capital from or cancel. They are running into many different difficulties, because although a pension plan gives its holder plenty of tax advantages, it also has one of the worst drawbacks. When can I withdraw the capital from a pension plan?
Certain personal circumstances have to apply before you can withdraw capital from this investment vehicle, which, as we said, has the disadvantage of being untouchable just when we need the money we’ve invested. The circumstances that allow a withdrawal are:
- Retirement of the holder: If we took out a pension plan, this was the main reason: to have our savings available once we retire. Some pension plan contracts include the option of getting our money back at 60 even if we retire at 65, but only some.
- Serious chronic illness: Holders can withdraw the capital from their pension plan if they fall seriously ill and can prove medically, or before a medical board, that the illness is not expected to improve and will keep them out of work for life. In this case you can withdraw the money, but the process will be slow. You can also withdraw it if your spouse falls seriously ill and the rest of the family depends on them financially.
- Death, disability or dependency: When the holder of a pension plan dies, their legal heirs (children, spouse) can access the capital without any problems or objections. Disability must be permanent, never temporary, and always proven through the proper legal and medical procedures. Total dependency covers anyone who cannot look after themselves in daily life. In this case they tend to put obstacles in the way of the withdrawal, but with persistence the money is eventually paid out.
So these are the only situations in which you can withdraw the capital from your pension plan. Legally, they say that being unemployed for more than 12 months also lets you cash in a pension plan, but with all the withdrawal attempts there have been, families have been left to lose their homes while having enough money in a pension plan to pay off the mortgage, so I see that option as rather unworkable. You’d have to read the small print.
That’s why we should all have at least basic investment knowledge. If we did, we wouldn’t use a pension plan as an investment vehicle, since its only advantages are the tax deductions when filing our income tax return and the fact that it can’t be seized by creditors, to the point that it’s untouchable even for ourselves.
It’s worth noting that we don’t have this problem with investment funds or term deposits, which we can cash in whenever we want, at most paying a penalty that can never be higher than the interest accrued.
Further reading
Featured image: LAVF, CC BY-SA 4.0, via Wikimedia Commons.
