Regulations for pension plans and funds

Find out about the regulations for these two long-term savings-investment tools

Pension plans are some of the most appealing savings and investment products on the market for supplementing public retirement pensions. In fact, their regulations establish the "supplementary" nature of this savings tool, designed to work in tandem with public benefits to which employees are entitled after retirement.

It is important to distinguish between pension plans and pension funds:

Pension plans are long-term savings-investment tools aimed at supplementing the public pension covered by Social Security.

Pension funds are a vehicle for accumulating wealth, without legal personality, affecting pension plans, created for the sole purpose of supplementing pension plans. With pension funds every shareholder's contributions are developed or invested, as is the income that they generate.

The law stipulates, through more than 100 articles, the classification, function, and purpose of pension plans and funds. It is, in short, a dense but important set of regulations, of which the most important aspects for you to know as a pension plan customer or potential customer are below.

Upper Banner Calculate Retirement Upper Banner Calculate Retirement
Save for your retirement
Calculate how your retirement would improve with contributions to a pension plan

Who's who in pension plans

  • The Plan promoter: any company, partnership, entity, corporation, association, or syndicate which promotes or participates in the creation of the plan. Depending on the type of plan, you may or may not be able to make contributions.
  • The participants: the owners of the pension plans. The people for whom plans are created and who make the contributions. It is important not to confuse the shareholder with the payee.
  • The payees: those who will receive the capital from the pension plans, regardless of whether or not they have made contributions.

Types of pension plans according to sponsor

  • Employment plans: sponsored by any company, partnership, corporation, or entity whose shareholders are its employees. In this type of plan both sponsors and shareholders can make contributions.
  • Associatedplans: the sponsor may be any association or syndicate in which shareholders are its associates, members, or affiliates. In this type of plan both sponsors and shareholders can make contributions.
  • Individual plans: the sponsor is a financial entity and shareholders are any natural persons. In this type of plan only shareholders make contributions.

Types of pension plans according to stipulated requirements

  • Defined contribution plans: those plans in which the shareholders' contribution amount, or the amount of money that will be contributed to the plan, is set in advance. If applicable, shareholder contributions are also set in employment plans. It is important to emphasize that in these plans the amount of future benefit is not guaranteed or defined.
  • Defined benefit plans: in these plans the total benefit amount to be received by payees is specified. This way, the customer knows exactly how much money s/he will receive when the pension plan is redeemed.
  • Mixed plans: these plans combine the features of the previous two so that the customer knows both the amount of contributions and the amount of contributions in any eventuality.
  • The legal limit for pension plan contributions

    The regulations governing pension plans set at €8,000 annual the amount you can contribute to a pension plan. In parallel, customers whose spouse does not have a net income from work and/or whose economic activities are lower than €8,000 a year will be able to contribute to their plan a maximum of €2,500 annually.

    The law establishes an exception to the contribution limit for customers with a physical or mental disability of at least 65%. This limit is set at €24,250, including contributions by third parties, which cannot exceed €10,000 a year.

    The legal limit to annual tax exemptions

    The maximum amount per year a shareholder can claim as a tax-deductible pension plan contributiosn is the lesser of the following amounts: €8,000 or 30% of net income from work and economic activities.

    If the limit is exceeded, the excess amount can be deducted during the 5 following tax years.

    Who can make contributions to the pension plan

    • Shareholders, regardless of plan type.
    • The sponsor of an employment plan, in favor of its shareholding employees, assuming the employees' ownership of the respective contributions.

    How to redeem a pension plan

    • As capital: The sum of the contributed capital (or part in the case of mixed-recovery) is redeemed as well as any profit as a single sum.
    • As income: the sum of the contributed capital as well as any profit is redeemed in periodic payments which can be by month, trimester, semester, or year.
    • Mixed-form: part of the capital and any profit is redeemed as one payment and the other part is received as income.
    • Flexible-form: the payee freely chooses the dates and amounts of the withdrawals, without any set frequency.
    Central Banner Pension Plan Central Banner Pension Plan
    Pension plans adapted to your needs
    See the options we offer:

    When a pension plan can be redeemed

    Typically, a pension plan is redeemed at the time of the employee's retirement, regardless of whether or not retirement was anticipated. Furthermore, the law does not require that funds be redeemed from plans. As such, shareholders can leave their capital in the plan indefinitely.

    However, regulations do establish a series of contingencies under which pension plan capital can be accessed prior to retirement age.

    • Total and permanent inability to perform in one's usual profession, absolute disability for all work, and severe disability.
    • Death of the participant or payee, which can generate widowhood or orphanhood rights to benefits, or other rights in favor of heirs or designated persons.
    • Severe dependency or high dependency of the participant as regulated by Law 39/2006 of December 14.

    Furthermore there are a number of cases of extraordinary liquidity:

    • Severe illness which makes one temporarily incapable of his/her usual occupation or activity for a minimum period of three consecutive months, and which requires clinical or surgical intervention or hospital treatment.
    • Long-term unemployment, provided that the shareholder is found to be legally unemployed, is registered as a job-seeker, and has exhausted unemployment benefits or has no right to them. Self-employed workers must have exhausted the right to receive benefits and must be registered as job-seekers.
    • Eviction from habitual residence, if it is confirmed that there is no other way to pay off the debt and that the amount redeemed will pay off the entirety of the debt.
    • After a period of 10 years from the initiation of the pension plan, beginning after 2015.

    What fees exist for pension plans?

    • Management fee: It has a maximum of 1.5% of the value of the accounts per year. Optionally, the above limit may be substituted for the limit of 1.2% per year of the value of the accounts plus 9% of the income statement.
    • Deposit fee: It has a limit of 0.25% of the value of the accounts per year.
    Mi Jubilación Mi Jubilación
    With the collaboration of the BBVA PENSIONS Institute:
    Pension Plans - You might also be interested in Pension Plans - You might also be interested in

    You might also be interested in

    • These are the changes made in 2018 involving pensions and the maximum amount payable during retirement.
    • We are going to explain how you can calculate the pension benefits you will receive after retiring.
    • Several factors can affect the personal income tax withholding for retirement pensions. Determine your percentage.
    Pension Plans - Tools Pension Plans - Tools

    Pension plan tools

    • How much state pension will you receive when you retire? Find out in three simple steps.
    • Find the pension plan that best suits your savings needs and start planning your future.
    • Our comparison tool will enable you to know the characteristics of all our plans and choose the one that best suits you.
    • With our calculator, you can find out the final benefit you will receive when you retire.
    • Would you like to know how much you can save on your annual tax return if you contribute to a pension fund?