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Pension Regulations

A pension plan is a financial product that offers you a wide range of advantages to enjoy a comfortable retirement. Of course, there are certain circumstances and situations in life that may force you to take early redemption of your pension plan. In the following section we explain all the cases in which you can recover your money before retirement.

If you have taken out a pension plan, surely one of the questions on your mind has to do with whether or not you can redeem your money early. Well, first of all it is worth noting that it is not a liquid financial product, so you cannot withdraw the money at any time.

The pension plan, as its name suggests, is intended to be withdrawn after retirement. Thus, the early redemption of a pension plan is only possible under a series of special circumstances.

If you have a pension plan and you die, the product passes to your spouse or heirs. It is up to them to decide whether they wish to redeem it or keep it. If they opt for the first alternative, they must continue the process through the inheritance.

How to recover money from a pension plan?

In order to redeem the plan before you retire, you must inform the bank that you want to access your money and justify that you can do so. The early redemption of the pension plan must be approved by the bank after checking the documentation you send it.

How long does it take to collect the redemption of a pension plan?

7 working days for the payment of the benefit in the case of immediate capital or for the payment of vested rights in the case of exceptional liquidity cases (extendable up to 30 working days in the case of employment and associate plans with certain characteristics).

How can a pension plan be cancelled?

A pension plan can be cancelled early if the holder is in a legal situation of long-term unemployment. To request it, the following documentation must be accredited to the bank: To be in a legal situation of unemployment. To be registered as a job seeker.

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Taxation of pension plans

The pension plan can only be redeemed when its contingencies are fulfilled. Unemployment is one of them, although not all unemployed people will be able to recover their money for retirement. Find out here who can do it and the procedures to achieve it.

However, after the changes introduced in 2013, it is no longer necessary to prove long-term unemployment to be able to redeem the plan, it will be enough to prove that the person in question is unemployed, although the following assumptions must also be met:

What the law requires is not to collect unemployment at the contributory level, which is equivalent to unemployment benefit. The same does not apply to the subsidy.  It is possible to redeem the pension plan while receiving the subsidy, but before doing so it is necessary to take into account how the pension plan is taxed in these cases because it can affect the possibility or not of receiving the non-contributory subsidy.

For a better understanding, when the plan is redeemed, it will be taxed as earned income, that is to say, as a regular salary. In order to receive the non-contributory subsidy, it is necessary to prove the lack of income and not to exceed certain limits, since in case of doing so, the right to receive this aid will be lost. Specifically, the limit is 75% of the minimum interprofessional wage of 491.40 euros in 2015 (the monthly SMI is 655.20 euros).

When can the money from Geroa be collected?

Only when one of the following contingencies occurs: Retirement. Total Permanent Disability, Absolute Permanent Disability and Severe Disability. Death.

How to cancel a Caixa pension plan?

The pension plans of La Caixa cannot be cancelled unless some of the situations described above occur: incapacity or death of the holder, dependency, serious illness, long-term unemployment or more than 10 years have elapsed since you started the plan.

How does GEROA pay taxes?

If you receive a lump-sum payment in GEROA, you can transfer the capital to another EPSV free of charge. 40% is exempt. The other 60% is computed as earned income, together with the rest of the wages or pensions.

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After seeing how to recover our pension plan, we would like to answer the question of when we can redeem it, since we will not always be able to have our money at the time we want, due to the purpose of the product. We are going to review the assumptions in which it is possible to do so according to the legislation.

An important characteristic of pension plans is that we cannot recover the money invested whenever we want.  This lack of liquidity is compensated, in theory, with a series of tax advantages in the contributions, since a plan allows you to pay less tax in your income tax return. Here you can see exactly how it works.

But it is one thing to know when to recover the plan and quite another to know how to choose the way to do it.  There is more than one formula for recovering the money invested, each with its advantages and disadvantages.

How does GEROA work?

GEROA is a non-profit organization. We do not charge commissions or distribute dividends, and the members of our governing bodies do not receive any remuneration, thus improving the profitability of savings. GEROA does not depend on any public body or financial institution.

What is the Euskorralito?

In the case of Geroa, if the amount accumulated on reaching retirement exceeds 45,120 euros, the members cannot withdraw it in full, but in monthly payments to supplement their pension. And that is the key to this case, which those affected have dubbed the “euskorralito”.

What happens if you have two pension plans?

When you have two pension plans, you can receive both in different years and with the payment method you prefer. They are independent. When you have contributed to the plans before 2007 you can reduce 40% if you redeem it in the form of capital (in a single payment). But this exemption can only be applied once.

Redeeming a pension plan

For example, if during our period as workers our gross annual salary is 22,000 €, the IRPF bracket for which we will be taxed will be 30%. However, if we decide to open a pension plan and contribute, on an annual basis, 1,500 €, this amount will be directly reduced from our taxable base, which will become 20,000 €. In this way, we will have lowered our tax bracket and now we will be taxed 24% of our income.

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With this modality we will receive periodically -monthly, quarterly, half-yearly or annual- an amount of money that can be fixed or variable. This will depend on the type of income we have chosen:

– Assured income. As the profitability of a pension plan is subject to market movements, the fee we receive may vary over time. This does not happen in the case of insured annuities and we will always receive the same amount.

Surrender in the form of an annuity has a more progressive tax impact, since the taxation is spread over different tax years. It is generally the most efficient way to redeem a pension plan, although it is also necessary to plan the redemption correctly to determine what annual amount minimizes the tax bill and try not to jump to a higher personal income tax bracket.