More changes to pensions for self-employed workers to come in Spain
Spain’s government has proposed that freelance workers who take partial retirement should have to wait an extra 5 years to claim 100% of their pension pot
The government of Spain has put on the table a proposal to reform the partial retirement plan, a type of retirement option that is currently chosen by very few people due to the severe restrictions it places upon workers.
Under the new plan, the government will extend the partial retirement plan to all workers, which has long been one of the main demands of unions and employers’ organisations.
However, in order to do so, the Ministry of Social Security is proposing cuts and penalties for those people who can currently can combine work and pension, mainly the self-employed.
Under this reform system, self-employed ‘autónomos’ in Spain would suffer. They would still be able to take active retirement once they reach the legal retirement age, collecting a pension while continuing to run their business, but if the new rules are brought in the amount they receive would be considerably lower.
The existing rules of the partial retirement scheme in Spain mean that self-employed people who reach the minimum legal retirement age and have made their social security payments for the allotted length of time can retire but continue to work, receiving 100% of their pension as long as they have at least one employee working for them. If they do not have an employee, they receive 50% of their pension.
Also of interest: Deadline for expats to secure a full UK state pension extended
According to the text of the proposed changes that the Spanish government recently presented to the trade unions and employers, the self-employed would now have to wait at least 5 more years, until they reach the age of 70, in order to receive 100% of their pension, as it establishes an increasing percentage of pension compatible with their activity.
Once one full year has passed since reaching the legal retirement age, a self-employed person could work and retire while receiving 30% of their pension; after two years, this amount would rise to 40%; after three years it would rise to 50%; after four years, 75%; and after five years 100%.
In exchange, the requirement to have an employee under contract in order to receive 100% is eliminated. They will be able to access the bonuses paid for each year that retirement is postponed, which can amount to a cash payment of up to 12,000 euros or a 4% increase in their pension.
Both trade unions and employers’ organisations have criticised the proposed reform, which makes partial retirement much worse for the self-employed.
Cristina Estévez, representative of the union UGT, said “The Ministry has for the first time given us a proposal for early partial retirement, a proposal that falls far short of our expectations, which we consider to be a reduction in rights.”
What the unions were satisfied with is that the government has accepted their proposal to recover the multiplier coefficient of 1.5 for permanent discontinuous workers, so that their retirement will be improved.
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Financial Advice Issues for Expats in Spain
I have been a Qualified Financial Adviser for almost 35 years now. 25 years in the UK for major institutions such as Natwest, RBS and Royal London. I have been in Spain giving expats financial advice now for 10 years and it is quite remarkable the different approaches as well as advice that is required for an expat now living in Spain. Blacktower is a company that has specialised in providing the best solutions for its clients living outside the UK for 30 years also.
The currency issue is always high on the agenda and a discussion for the long term future has to be taken onto account. Questions like What will happen if one partner dies? Will the other remain in Spain? What about other family members? What Inheritance tax provisions do you have in place? The list goes on and on.
Existing portfolio’s and investments that were the mainstay of portfolios in the UK may now be obsolete. An example of this is quite often tax efficient products in the UK like ISA’s and previously held TESSA’s PEP’s actually have low growth rates and provide no tax advantage to a Spanish fiscal resident.
Existing Pension holdings either paid by the state or private pensions built up through working lifetimes are topics that have to be covered. Many expats have lots of small pensions from many ex employers and can be confused by the communications and administration in dealing with them. At Blacktower we specialise in advising on how to consolidate and bring all these pensions together in one place.
Bank accounts and investments in Spain always bring up lots of questions too. Quite often the small print associated with financial products in Spain is in Spanish this can make it very difficult even if you have a good grasp of the language. Understanding Jargon in English is sometime difficult enough. I provide clear easy to understand letters and documents in English so that you fully understand any terms and conditions before making a decision.
Advice on tax efficiency is just as important and offering good returns. There are products available exclusively for Spanish expats that can provide invaluable benefits. Having a good base knowledge of the tax implications both now and in the future is an essential ingredient to making a sound decision.
I will complete a thorough factfind, ask you the right questions, establish your individual needs, attitude to risk and capacity for loss and desired returns before providing you with a full written report of advice and my recommendations in plain English. You will then have time to read and consider all the information before contacting me with how you wish to proceed.
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The above information was correct at the time of preparation and does not constitute investment advice and you should seek advice from a professional adviser before embarking on any financial planning activity.
Blacktower Financial Management (Int) Ltd is licensed in Gibraltar by the Financial Services Commission (FSC) and is registered with both the DGS and CNMV in Spain
