With the 2014 reform of pension plans by Royal Decree 62/2018, as of 2025 it will be possible to redeem a pension plan without having to wait for a special event such as retirement, disability or long-term unemployment.
With the 2014 reform of pension plans by Royal Decree 62/2018, from 2025 it will be possible to redeem a pension plan without having to wait for a special case such as retirement, disability or long-term unemployment. It will only be necessary that more than 10 years have passed since the contributions were made to the plan. The accumulated capital that meets this condition can be redeemed without giving any explanation to the financial institution.
We would like to remind you that Royal Decree 62/2018 amended the Regulation on the instrumentation of pension commitments of companies with workers and beneficiaries, and the Regulation of pension plans and funds, which revises downward the maximum fund management fees and, in turn, raised the liquidity of this savings alternative by allowing participants to withdraw, from 2025, without limitation, contributions with an age of at least 10 years.
From 2025, the possibility of redeeming contributions to pension plans with a minimum age of 10 years will be enabled, without the need to meet exceptional conditions such as retirement or disability. This relaxation, derived from the reform implemented by Royal Decree 62/2018, will significantly transform the liquidity regime of these savings instruments, allowing savers to access their capital without time restrictions, provided that at least ten years have elapsed since their initial investment.
Until now, pension plans only allowed their redemption in specific situations: retirement, long-term unemployment, disability, serious illness, or death of the holder, in which case the beneficiaries could receive the funds as earned income. This new regulation introduces an exception, applicable from 2025, which will give greater flexibility to participants.
Pension plan reform
The regulation establishes two fundamental changes in the operation of pension plans. The first is the possibility of redeeming contributions more than ten years old, starting with those made before 2015. Therefore, as of 2025, the capital contributed up to 2015 will be available, while 2016 contributions will be available as of 2026, and so on consecutively.
The second relevant change is the reduction in management fees. These will go from an average of 1.5% to 1.25%, and in funds linked to fixed income, fees may be reduced to 0.85%. This adjustment in management costs is already effective from 2018, and its objective is to make pension plans more attractive and accessible to savers.
How to recover contributions
The regulation establishes that the investment made plus the revaluation obtained during the 10 years of permanence in the fund may be recovered. To calculate the recoverable amount, the number of units acquired at the time of the contribution and their updated value will be considered. This measure is intended to give greater dynamism and liquidity to the plans, making them a more versatile option for planning long-term savings.
Taxation of the 10-year surrender
Although the liquidity of these products is extended, the taxation of the surrender remains the same as in traditional scenarios such as retirement. The money withdrawn is considered as earned income and is taxed at the general personal income tax base. Depending on the total amount and the progressive tax scale, the applicable percentage will range from 19% to 47%. This means that the money withdrawn will be added to the salary and other income, which could modify the applicable marginal rate.
It is important to remember that the redemption of a pension plan also counts as a second payer in the IRPF return, which could affect the obligation to file the annual return if the total amount redeemed exceeds certain limits.
Surrender options
At the end of the 10-year term, participants will have three forms of redemption: in the form of income, capital or mixed. Opting for surrender in the form of an annuity allows receiving periodic payments, which, in tax terms, can be more advantageous, since the tax will be applied progressively and adjusted to the taxable income brackets. On the other hand, choosing to redeem the capital all at once can significantly increase the taxable base, thus raising the applicable marginal rate.
An interesting option for those who made contributions before December 31, 2006 is the possibility of applying a 40% tax reduction on the amounts withdrawn. This means that if, for example, 50,000 euros are withdrawn, only 30,000 euros will be added to the tax base. However, it should be borne in mind that, as this is a high amount, it could cause the taxpayer to move up the tax bracket and face a higher tax rate.
Tax considerations and investment alternatives
From a tax perspective, redeeming the pension plan before retirement may imply paying more taxes, since the IRPF applied to the salary tends to be higher than that corresponding to a pension. Therefore, it is essential to evaluate not only taxation, but also the associated opportunity cost. Keeping money in a pension plan means leaving it in a product with variable returns and specific commissions, while it could be more profitable to invest in other instruments such as mutual funds or indexed portfolios.
In conclusion, the possibility of redeeming pension plans that are more than 10 years old, starting in 2025, represents a significant advance in the flexibility and accessibility of these products. However, it is important that participants carefully assess the tax implications and investment alternatives before deciding, in order to maximize the return on their savings and optimize their long-term financial planning.
For more information, please consult with Tax consulting
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