Private pension withdrawal permitted after 10 years' savings

Although a tax reform in 2015 already allowed for all or part of private pensions to be liquidated by the holder subject to a minimum of a decade in contributions, the necessary regulations had not been developed until now.

The aim is to stimulate personal saving and create greater flexibility in personal pension funds, explains economy minister Luis de Guindos, who may be leaving his post in a couple of months if he is successful in his application to become deputy chairman of the European Central Bank (BCE).

But those wishing to withdraw funds can only do so from 10 years after the 2015 tax reform, or later if they did not start to contribute to a personal pension until after that year.

It means that effectively pension funds will not be freed up as cash for anyone until the last day of the year 2025, given that the reform was agreed on New Year's Eve two years ago.

Those who plan to retire before 2025 may be able to withdraw funds from their private pensions – otherwise, they are required to be in one of three situations which at present are the only ones legally recognised as grounds for cashing in the pot – unemployment, illness, or facing eviction due to defaulting on a mortgage or rent payments.

At the moment, around eight million people in Spain pay into private pensions and have amassed between them over €106 billion.

De Guindos' department says the main aim behind the new law is to convince young adults to pay into a private pension.

“At their age, they have other priorities, which is why we have tried to axe as many of the rigid restrictions as possible,” they explain.

“Until now, these young adults are faced with losing a regular chunk of their income that they would not see again until their 60s.”

Commissions charged by banks for managing pension funds have also been slashed.

“The reduction is substantial – many pension funds that are not performing well anyway become even less worthwhile because the commission charged was too high, so cutting these fees back is another tool for stimulating private pension saving,” the economy ministry explains.

The average commission charged for fund management has been reduced from 1.5% to 1.25% and deposit commissions from 0.25% to 0.2%.

Amounts normally charged depend upon the type of plan held.

The lowest-risk type, which also has the lowest potential for growth, is a fixed monthly contribution to a fund, and the maximum commission that can be charged will go down from 1.5% to 0.85%.

For a medium-risk fund, whereby part of the monthly contribution is fixed and another part is variable, will see commission drop from the 1.5% upper limit to 1.3%, whilst fees charged for a guaranteed-income or variable-contribution pension will still be subject to a 1.5% maximum.

Fixed-contribution funds perform the worst because they have been affected by the very low interest rates seen in the last eight years or so, which is why their commissions have been cut the most, to help offer savers a greater chance of earning a reasonable return.

One of Spain's major unions, the Labourers' Commissions (CCOO), however, does not agree with the pension reform.

“It will mean private pension funds tend to become synonymous with deposit accounts and fixed-term assurance policies, divorcing them from their purpose as a tool for long-term savings provision,” the union criticises.

“This opportunist discourse seems to be promoting private pension provisions as an alternative, and it's not, it's essential.”