Author:
Miriam Sánchez Gonzalez.
Changes in pension plan regulations are on the horizon for 2025
In 2025, an important reform of the pension plan regulations comes into force.
With the 2014 pension plan reform, from 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. 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.
This modification, which affects both workers and self-employed entrepreneurs, promises a significant fiscal impact and poses new opportunities and challenges for savings and financial planning in Spain.
What is the change in pension plan regulations?
The reform will allow pension plan holders to redeem their money a decade after having invested it, without being limited by personal situations such as retirement, disability, serious illness or prolonged unemployment.
Until now, these conditions were strict requirements for accessing savings accumulated in a pension plan, which limited access to the money to a restricted number of specific cases.
This change in criteria seeks to provide greater flexibility for savers and facilitate access to funds in times of need.
What capital can be recovered?
In 2025, contributions made prior to 2015 can be redeemed, while those made in 2016 will have to wait until 2026 and so on.
It will be possible to recover the money invested in the plan up to December 31, 2015, plus any revaluation they may have had. To do this, the number of units in the pension fund at that time will be taken and their purchase price and current value will be calculated.
How does this change affect the taxation of pension plans?
With this reform, the tax impact of pension plans on taxpayers will change considerably. Currently, pension plan withdrawals are considered earned income and are subject to the beneficiary’s personal income tax rate.
With the possibility of a 10-year surrender, taxpayers will need to carefully evaluate when and how to withdraw funds to avoid unexpected tax burdens.
From a tax standpoint, recovering the pension plan now rather than at retirement generally means paying more tax. Your personal income tax rate as an employee will usually be higher than as a retiree. This means that the salary tends to be higher than the pension and, therefore, implies paying more taxes.
On the other hand, it is necessary to value what you stop earning by having your money invested in a pension plan when you could have it in another more profitable product with more commissions such as mutual funds or an indexed investment portfolio.
In short, this change allows new tax planning strategies to adapt the withdrawal of funds to lower tax brackets, which can benefit those who take advantage of the redemption in years when their income is subject to lower tax rates.
What does this reform mean for the future of pension plans in Spain?
The regulatory change could also encourage many savers to consider pension plans as a more accessible and less rigid tool to cover possible financial needs.
It is also expected that this change will motivate more citizens to consider investing in pension plans with the security of being able to access their money before retirement.
However, it is essential to have the right advice to optimize the tax advantages and avoid potential drawbacks.
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