You may be running out of time to save up for your retirement if, like two-thirds of Spanish people, you have never given the matter a thought…

Spain’s retirees of tomorrow could be heading for poverty, a shock survey reveals. Nearly two-thirds of its citizens and working-age residents fail to put any money aside for their old age.

Despite dire warnings in recent years that the State’s pot is running dry and could be empty by the time today’s twenty- and thirty-somethings hang up their briefcases and collect their gold watches, only 37 per cent of the active population in Spain has admitted to saving up for their retirement. This is considerably lower than the European average of 56 per cent, says research by Fidelity Insurance, led by the fund manager for its Latin America and Southern Europe operations, Rafael Febres Cordero. In fact, only Portugal has fewer inhabitants making provisions for their retirement, with three-quarters of the country’s working population burying its head in the sand.

Most people in Spain who say they do not put any money aside for the future claim that they find it impossible to do so, with wages not rising in line with the country’s rapidly-increasing cost of living, and property prices spiralling out of control. The monthly mortgage or rent, the bills, the groceries and the cost of educating and bringing up their children are more than enough to pay for without adding pension contributions to their already stretched budget. Parents will soon have to face the annual back-to-school bill of several hundred euros per child covering uniforms or overalls, textbooks, extracurricular classes and canteen fees, and it was estimated last year that nearly half of all Spanish residents are unable to afford an annual holiday.

Furthermore, the State pension has historically been fairly generous in comparison to that of many Northern European countries. Today’s average is in region of 600 euros per month, meaning that it is possible, at a push, to live on what the Social Security provides. The limit on private pension investments is in region of 8,000 euros per year,  and few bother.

Yet with Spain’s increasingly ageing population, the fact that people start work later (few being available for work until they finish their studies in their mid-twenties) and low job security due to Spain’s culture of temporary contracts, means the under 40s are building up a much smaller pot via Social Security payments than their parents did. These days, some eight million people in Spain take home a State pension, but whether the next generation will do so remains open to conjecture.

According to Febres Cordero, the majority of today’s active population believe they will have to continue working until long past the age of 65 to have enough money accumulated to be able to afford to retire. Yet the Organización para la Cooperación y el Desarrollo Económico (OCDE) reveals that by 2050, Spain will be Europe’s oldest country in terms of the average age.

Countries less affected by this demographic issue – the birth-rate falling and people living longer – are, ironically, more conscious of saving up for their retirement. In Sweden, a staggering 79 per cent have some kind of pension fund, with Germany (77 per cent) and Austria (75 per cent) not far behind. Switzerland’s 72 per cent and Holland’s 71 per cent almost double Spain’s figures, the OCDE and Fidelity’s research both reveal.

Part of Spain’s problem is that well over half of its adult residents claim to know little or nothing about pensions or retirement funds and are too afraid to find out, fearing being blinded with science. This rises to almost three-quarters of the under-35s. A surprising 40 per cent of adults in Spain say they ‘wouldn’t know where to start’ when considering saving up for retirement and are put off by the apparent complexity of the system.

Saving up for retirement – where do you start?
Experts reveal that most people in Spain do not think about saving up for a pension until they reach 40 years of age. In practice, few do so in the UK before they hit their thirties, but making these provisions is easier in Great Britain because of the widespread culture of company pensions.

Privately-funded pension plans are a relatively new concept in Spain, having come about as a result of a law passed in June 1987. There are two ways of saving up for retirement in Spain – a pension plan (plan de pensión), which is linked to the State scheme and considered a complementary financial provision, and a retirement plan (plan de jubilación) which is completely independent of it. Those starting up a pension plans are usually aged 35 to 55, whilst retirement plans see a starting age of, typically, 30 to 55 years. The latter is more popular amongst those on a low income as they are able to access the funds whenever they need money, which is not the case with a pension plan. They are recommended more for those who have limited job security as the funds are accessible at any time, but they do not carry tax benefits in the same way as pension plans.

Pension plans can be offset against the annual tax declaration and produce a higher income, but cannot be touched until the day the plan-holder retires except in certain circumstances such as serious illness, long-term employment or death of the plan-holder.

Both pension and retirement plans involve monthly, annual, quarterly or twice-yearly payments as agreed with the plan provider – usually a bank or insurance company – which can be later increased or reduced as the policyholder’s circumstances dictate.

If you have an existing pension fund in your country of origin that you have not contributed to for some time, it may be worth comparing its performance with that of funds available in Spain, and considering whether to continue to contribute to it. Either way, ensure you have the full details of the holding company to hand so that you are able to claim the funds when you do eventually retire.

How much to put aside is always a burning question. As a rough guide, if you are just starting to put money aside for retirement, take your age, half it, and this is the percentage of your monthly income that you should invest.

Since most of us are unable to afford to do so, put aside as much as you can spare. Even 20 euros a month is better than nothing at all.

Am I entitled to a Spanish State pension?
Those who are employed on a contract, or self-employed and making Social Security payments every month, are entitled to a State pension after 15 years of contributions provided at least two of these years are in the last decade before state retirement age.

However, after 15 years of payments you will only be entitled to 50 per cent of the total – from here on in, it works on a sliding scale with those who have contributed for 35 years able to claim the full amount. After 20 years of paying Social Security – or an employer paying it on your behalf – you are entitled to 65 per cent of the total pension; after 25 years this rises to 80 per cent and following 30 years, 90 per cent. This means that to retire at 65 with the full pension, you will need to have been working legally in Spain since age 30.