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What is the tax relief on pension plans?

When you take out a pension plan, you should know that you can deduct your contributions from your tax base when you file your tax return, which means that you will pay less tax.

These investment products not only provide extra money for your retirement in the future. You can also benefit from attractive tax advantages while you are still working.

When you file your annual tax return, the Treasury allows you to claim tax relief on (i.e. directly deduct) the contributions you have made to your pension plan. The only thing to bear in mind is that the maximum amount for these contributions is 30% of your net income from work or economic activities, with a limit of 8,000 euros.

When filling in your draft tax form, to benefit from this saving you can directly deduct the money invested in your pension plan from your tax base in boxes 400 and 409.

There are other advantages and discounts which third parties can benefit from if you transfer your pension plan to another entity.

Pension plan redemption calculator

Use our calculator to discover everything you need to know about redeeming your pension plan.

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Rescate de plan de pensiones

What are the tax advantages when a pension plan matures?

All the contributions you make to pension plans are deductible from the general tax base on your annual tax return. As mentioned above, the Treasury allows you to recover a percentage of your contributions, which is money you can maximise in the future when your pension plan matures because the amounts obtained from pension plans are treated as work-related income and are taxed as such.

The time to think about redeeming your pension plan is when you stop working and start enjoying your retirement. You can do this in several ways: in the form of cash, income, a mixture of both, or as an annuity.

Remember, if you redeem your pension plan in the form of cash, you'll receive the whole lump sum which will increase your tax base and therefore your tax burden.

Redemption in the form of income, which is the most common, means that you will collect the capital month by month, quarterly or semi-annually. You can choose the frequency as well as the amount you want to receive. If you decide to redeem your pension plan through this system of income, your tax base will be lower so it's a good tax saving strategy.

In the mixed redemption system, you'll receive part in cash and the rest as income, allowing you to optimise the tax exemptions and stay within the most advantageous tax tranche.

Redemption in the form of an annuity, if the plan permits this or if you reach an agreement with the bank, means that instead of collecting the capital save little by little until there is none left, you will periodically receive the agreed amount as an annuity, which will be taxed as work-related income.


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