What does the redemption of a pension plan involve?

We will explain how to redeem a pension plan and what it entails
To begin with, let's see what it means: the redemption of a pension plan essentially consists of recovering the investment you have made. Of course, this operation is subject to certain conditions and situations - retirement, but also unemployment, disability, dependence, critical illness or death -, and is regulated by the applicable law.
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According to Spain's Regulations on pension funds and plans, the amounts paid out by pension plans are considered as monetary benefits and may be:

  • Benefits in the form of capital, with a single lump-sum payment being received. These benefits may be paid immediately on the date the contingency event occurs, or payment can be deferred until a later date.
  • Benefits as income, with a series of two or more payments received with a regular periodicity, including at least one payment each year. The income can be received as a consistent, insured amount, or can be based on periodic redemption of the shares remaining, or it can also be variable, linked to some pre-established reference index or parameter. This income may be lifelong or received for a shorter period, and payment may begin immediately on the date of the contingency event or deferred until a later time. If the beneficiary dies, the stipulations can include transfer of the income to other planned or designated beneficiaries.
  • Mixed benefits, where income of any type is combined with a large lump-sum payment, but still in compliance with the points explained above.
  • Benefits other than those described above, in the form of payments at no regular intervals. Moreover, there can be tax advantages depending on how the money is received.
However, as it is a long-term product, it is not easy to define a pension plan's taxation scheme, given that during the term of the plan, there will probably be some changes to the law regarding taxation. In Spain specifically, the 2015 Tax Reform changed the way investments can be recouped.
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In any case, we recommend that you check with us; at BBVA you will always get the professional advice you need, as well as the products and services that are best suited to your preferences.
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