When can I cancel a pension plan?

We go over the cases in which you can cancel a pension plan before retirement

Pension plans are long-term savings vehicles. In principle, the contributed capital cannot be recovered until the plan holder reaches retirement. To compensate this restricted liquidity, they offer other advantages, such as the attractive tax incentives when making contributions.

Nevertheless, there are a series of exceptional circumstances or contingencies under which you can redeem a pension plan in advance.

These circumstances mostly relate to exceptional situations in which the participant is expected to need the money contributed to the plan, so the law allows it to be fully withdrawn, provided that some strict requirements set out below are met.

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Employment disability of the title holder

The legislation allows a pension plan to be redeemed and the capital saved to be recovered if the plan holder proves to be in a legal situation of employment disability, recognized by the competent body, in the forms of total permanent disability, absolute permanent disability or severe disability. All the documentation that proves these situations must be provided in order to carry out the withdrawal.

Is important to point out that if, for any reason, the condition of disability to work were lost, the right to continue to receive the incomes from the pension plan would also be lost.

Situation of dependency

To cancel a pension plan due to this contingency, the plan holder must prove that they are in a situation of severe or high dependency, according to the scale established in Royal Decree 504/2007, of April 20.

Severe illness

For the contingency of severe illness, the law allows for a wider range of coverage than in the previous cases. Therefore, a pension plan can be redeemed due to this situation both if the plan holder themselves is suffering from the severe illness and if it is his/her spouse, one of their first-degree ascendants or descendants or someone who lives with the participant or is dependent on him/her in a guardianship or fostering arrangement.

On the other hand, a severe illness is considered any illness or injury that temporarily incapacitates the person for the purpose of carrying out their usual occupation or business activity for a continuous period of a minimum of three months, and that requires clinical intervention of major surgery or treatment in a hospital.

Furthermore, illnesses or injuries with permanent consequences that partially limit or completely prevent the affected person from carrying out their usual occupation or business activity, or that incapacitate them for the purpose of carrying out any occupation or activity, whether or not they require assistance from other people for the most essential activities of human life, are also included.

To redeem the pension plan under this circumstance, as in the previous cases it is necessary to prove the state of severe illness in accordance with the above by providing the suitable medical documentation.

Death of the plan holder

At the time of the pension plan holder's death, the beneficiaries previously designated by the plan holder will receive the rights accumulated in the plan. In the event that there is no specific beneficiaries are designated, it will be the legal heirs who will receive the capital.
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Situation of long-term unemployment

A pension plan can also be cancelled if its title holder is in a legal situation of long-term unemployment. For this, three requirements should be met:

  • 1. Being in a legal situation of unemployment.
  • 2. Being registered as a job-seeker.
  • 3. Having exhausted the contributor's benefit for unemployment or not having the right to it.

On the other hand, self-employed workers may also cancel their pension plan due to long-term unemployment if they have already exhausted all the benefits and aids that they re entitled to due to unemployment and they are duly registered as job-seekers.

After 10 years in the plan

Following the latest legislative reform, it is now possible to withdraw shares in a pension plan that are at least 10 years old and that were made prior to January 1, 2015. This way, customers of pension plans that meet this length of investment requirement may begin to withdraw these contributions from January 1, 2025.
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