The time to redeem your pension plan is when you reach retirement.
The final amount will correspond to all the contributions you have made over the years plus the return that the plan has generated. However, there are some exceptional circumstances when you can redeem your pension plan early.
- Long-term unemployment. You must be officially registered as unemployed and either have used up your unemployment benefit or not be eligible to receive it.
- Accreditation of severe dependency or absolute permanent incapacity for work.
- Serious illness, either of yourself or your spouse, or of a first-degree ascendant or descendant.
- Your death, in which case your beneficiaries will receive all the contributions made plus any return that the plan has generated.
- If you haven't assigned any beneficiaries, your legal heirs will receive the sum in question.
- With effect from 1 January 2025, you can also redeem your pension plan 10 years after taking it out.
Types of pension plan redemption
You have different alternatives to choose from when you redeem your pension plan.
Total redemption in the form of cash:
You'll receive all the money that has accumulated in your pension plan as a lump sum. This is disadvantageous from a tax point of view because the sum you receive will be treated as work-related income and will be taxed as such the following year. Depending on the amount, the Treasury may withhold nearly half of it. However, all the contributions made before 1 January 2007 are subject to a reduction of 40% when you collect them, while the rest will be taxed as work-related income without any advantage.
Partial redemption in the form of income:
Under this system, you'll receive regular amounts from what you have contributed for the period of time agreed when you redeem the plan and choose the income type. This type of redemption is more advantageous from the tax point of view.
There are two systems: Guaranteed income, where you always receive the same amount of money, either temporarily or for life. Financial income, where the amount you receives depends on the return generated by the plan.
This is a combination of the two previous options. First you receive an agreed amount and then a regular income. From a tax point of view, this is midway between the first and second option and is particularly suited for people who are happy to receive an initial lump sum and then another sum periodically while securing a certain tax saving.
At Bankinter, we have different pension plans adapted to all types of investment. Check the options available and get the perfect supplement to your retirement.