Old-age insurance in Spain is based on a system of three pillars.

• Mandatory State Pension Scheme
• Voluntary Company Pension Provision
• Voluntary Individual Pension Provision

There is a need to balance the contributions in social security and the pay outs for pensions in Spain. Government of Spain has approved a reform aimed at reducing pension spending by about 3.5 percent of GDP by 2050. Seguridad Social provides information for the social security system in Spain.

Mandatory State Pension Scheme

There are two categories of state pension in Spain; Contributory and Non-contributory.

Non-Contributory Pension

Non-contributory pensions are targeted at low-income households and the disabled. Beneficiaries must not have been contributory members of the Social Security system during their working life.

In order to qualify, the beneficiary may not have a monthly or annual income equal to or greater than the non-contributory pension of €339.70 per month (€4,755 per annum).

Contributory Pensions

The contributory retirement pension (Pension por Jubilacion Ordinaria) represents the main source of retirement income for approximately 8.75 million pensioners in Spain.

Contributions

Minimum contribution period is 15 years (5,475 days). The pensions system is financed by a payroll tax on salaries. The employee pays 4.7% of his/her salary while employers must pay the equivalent of 23.6 percent of an employees salary into the scheme.

Who Qualifies?

A full pension is available to citizens and residents 65-years-old and older that have contributed for 35 years. The minimum age can be lowered in certain special cases:

• Early retirement at of 60 years of age due to being insured by a Mutual Society
• Early retirement at of 61 years of age without being insured by a Mutual Society
• Partial retirement
• Special retirement at 64 years of age
• Retirement of Mining Statute personnel, air transport flight personnel, railway workers, artists, bullfighting professionals, firemen and members of the Basque Police Force
• Flexible retirement
• Retirement of workers with a degree of disability greater than or equal to 45% or 65%

Benefits

The pension is calculated by applying the corresponding general percentage, in accordance with the number of contribution years and, if applicable, the additional percentage when entering retirement over the age of 65, to the regulatory base. The scale starts with 50% compensation at 15 years of contributions and is increased by 3% for each additional year between 16 and 25 years and by 2% from 26 years until it reaches 100 percent at 35 years.

If contributions are made after January lst, 1967, all the days effectively contributed will be taken and the total number of days will be divided by 365 to obtain the number of years contributed. The fraction of the year which may result will be rounded up to a full year.

If there are contributions made prior to January lst, 1967, the number of years contributed is obtained by dividing the total number of days contributed from the sum of the following contributions, by 365.

Expat Pension

EU Members

Each EU country adds together the insurance contributions from all EU countries. Then each country sees how much state pension (if any) a person would get if the insurance contributions had all been paid into that country's own social security scheme. Each country pays part of a person's pension; how much depends on how much has been paid into its scheme.

Non-EU Members

Spain has bilateral pension agreements with more than 20 countries. For those who are moving to Spain temporarily, you may be exempted from contributing to the basic scheme. Enquire with administrators of your pension plan.

Foreign nationals from countries with which Spain has not concluded a social security agreement, may request a refund of their contributions when they permanently leave Spain.

Private Pension

Private pensions are an option for anyone not qualifying for a state pension, or who will receive only the minimum state pension. There are a wide range of private pension funds. Many are provided by the banks, but others operate independently.

Private pensions in Spain generally take on two possible forms :
• Individual Pension
• Collective Pension (divided into Associative and Company Schemes

Contributions

There is usually a minimum monthly payment, as low as €50 a month and lump sum contributions are usually from €600.

It is also possible to continue to contribute to a personal pension plan abroad or to an offshore fund. Contributions to foreign pension schemes aren't tax deductible in Spain so all benefits paid are tax free.

Benefits

The amount of pension paid depends on the chosen type of policy. There is a maximum amount of contributions that are deductible from income. This depends on salary and contributions to other insurance schemes.