State pension in Spain: Complete guide

Thinking of retiring to sunny Spain? It’s a wonderful country to spend your post-work years, with beautiful weather, delicious food and good quality of life. In fact, Spain was ranked in the top 40 countries to retire to in the 2020 Global Retirement Index¹.

One of the first things you’ll need to do is get your pension arrangements sorted. At the top of your list is checking whether you’re eligible for the Spanish state pension. If not, you can look into alternatives such as transferring over your UK pension.

We’ll cover all of this and more in this handy guide to the state pension in Spain, including the application process and how to claim pension refunds should you need to.

While sorting out your pension, it’s also a good time to find a secure, convenient and low-cost way to manage your money when in Spain. Open a multi-currency Wise account and you can send money to and from the UK and Spain for tiny fees and the real exchange rate.

Plus, you can spend like a local from the minute you arrive, without any need to hunt around for the best exchange rate and convert currency. Simply tap and spend with your contactless Wise debit card, which automatically converts GBP to EUR at a great rate whenever you make a purchase.

Learn more

More on this later. Let’s start by looking at the basics of the Spanish state pension system.

The Spanish state pension - basic facts

The Spanish pension system is a three-pillar system, just like in many other countries. It’s made up of - state pensions, company pensions and voluntary private pensions.

Focusing on the state pension, here’s what you need to know:²

• The state pension system is funded through compulsory employment and social security contributions - everyone working in Spain has to pay in.

• There’s also a non-contributory pension for low-income households and people who don’t qualify for other pension support. This is available through the Compulsory Old Age and Disability Insurance scheme, and is means-tested. If you’re a foreign resident, you can claim this pension if you’ve lived in Spain for at least 10 of the last 15 years.

• The system is overseen by the Ministerio de Inclusion, Seguridad Social y Migraciones (Ministry of Inclusion, Security, and Migration).

• The Spanish state pension is generous - the country spends a whopping 11.4% of its GDP on its pension system (much higher than the global average of 8.2%). Pre-tax pension rates are 81% of the gross annual salary, one of the highest in the EU.

• The minimum pension in Spain is between €642.90 and €835.80 (in 2019), while the maximum is €2617.53.

• The average state pension in Spain is €1205 for men and €750 for women.

• Employees contribute approximately 4.7% of their salary, employers contribute around 23.6%.

• Pensions in Spain are taxed at rates between 8% and 40%, although you can put contributions towards your Spanish pension down as tax deductibles.

What is the Spanish state pension age?²

The Spanish state pension underwent some important reforms back in 2013, resulting in the official retirement age being gradually increased every year. It will go from 65 to 67 by 2027, increasing by two months every year.

To give you an idea of where it’s currently up to, the state pension age in 2020 was 65 years and 10 months.

Is early retirement possible in Spain?²

Love the idea of retiring earlier than the state pension age? Unfortunately, early retirement is a little more restricted in Spain than in other countries.

To retire just two years under the state pension age,** you’ll need to have paid into the system for at least 35 years**. Plus, you’ll need to meet a number of other conditions.

There are some exceptions to the early retirement restrictions, such as for disabled workers or people who work in hazardous jobs like the Spanish fire service. In these cases, you can retire from 60 years old provided you’ve made adequate contributions.

If you aren’t eligible for full early retirement, you can consider partial or flexible retirement - both of which are feasible options in Spain.

Spanish state pension eligibility - who can claim it?

Now, we come to the really important bit - who is eligible to claim the state pension in Spain. The good news is that foreigners can access the Spanish state pension, but you’ll need to meet certain conditions.

The main one is the number of years you’ve worked in Spain and paid social security contributions. Here are the requirements²:

• For the minimum state pension (around 50% of the maximum payout) - a minimum of 15 years of work and contributions, at least 2 of which are in the 15-year period before you retire
• For the full state pension - 36 years of work and contributions (increasing to 37 years by 2027).

However, if you’ve moved to Spain from another EU country, you can count the number of years worked there towards your application for the Spanish state pension. So, you can do 5 years in France and 10 years in Spain, for example. In some cases, this could mean that you’re eligible for the state pension in two or more different countries.

What about self-employed workers?

If you’ve worked for yourself while in Spain, don’t worry - you won’t miss out on the state pension.

As long as you register as self-employed, and pay contributions into the Spanish self-employed social security fund for the required number of years, you can still claim a pension.

The Spanish state pension for UK expats - how to claim it

Worked in Spain for the required number of years? Great, this means you should be eligible to claim the state pension to cover you for retirement.

The next step is to apply for it, as your state pension won’t be paid automatically. Make sure you do this at least three months before your official retirement date. Simply follow these steps²:

1. Complete a pension application form - you can download the required form here
2. Submit the form at your local INSS social security office along with a valid ID and Spanish ID number
3. Wait for the INSS to process your application
4. Your pension payments will usually be backdated to your last working day, up to a maximum period of three months.

Not eligible? Alternatives to the state pension in Spain

15 or 36 years of work in Spain is quite a lot, so not all UK retirees will be eligible for the Spanish state pension.

Luckily, there are a couple of alternatives available, including a company pension if your employer has a pension scheme in place.

Private pensions in Spain

If you don’t qualify for the state pension, you can always arrange a private voluntary pension. Of course, you might also want a private pension to supplement your state pension earnings. These private pension funds are available through banks, insurance companies and other Spanish financial institutions.

With a private pension, you can make individual contributions at a rate agreed with the pension provider.

As an added bonus, Spanish tax law for private pensions lets you make annual contributions of up to €10,000 tax-free. If you’re a retiree or over 50, this increases to €12,000².

Transfer your UK pension to Spain

Of course, another alternative to the Spanish state pension is to transfer over your pension pot from the UK.

If you’re a UK citizen retiring in Spain, you can transfer your UK private pension pot over to Spain using the Qualifying Recognised Overseas Pension Scheme (QROPS).

There are both benefits and drawbacks to doing this, including potential tax implications. You may also need permission from HMRC to transfer your UK pension.

If you’re interested in accessing the QROPS scheme, it’s a good idea to get expert pensions advice first. This will help you understand your options and figure out the most cost-effective and tax-efficient plan.

You may also want to receive your pension earnings from the UK using a money transfer specialist like Wise. With a Wise multi-currency account, you can receive your UK earnings in GBP, avoiding unfavourable exchange rates and eye-watering bank fees. Then you can convert it into EUR for spending in Spain at a much better rate. This could turn out to be a real money-saver.

Can I claim my Spanish state pension in the UK?

We’ve looked at how to transfer your UK pension to Spain, but how does it work the other way around?

If you’re heading home after working in Spain, you’ll want to know whether you can receive Spanish state pension earnings in the UK. It may be possible to transfer your pension over, but you’ll need to seek advice from a pensions specialist. The rules about tax and other matters relating to pension transfers can vary from country to country.

Pension earnings paid into your UK bank account from Spain may also be subject to transaction fees and unfavourable exchange rates. Luckily, there’s a way to swerve this and save money, which we’ll look at next.

Wise - an easy, low-cost way to manage your pension benefits in Spain

If you’re getting a UK pension paid into your Spanish bank account, or the other way round, consider opening a multi-currency Wise account instead. This is one of the best ways to save money on fees and exchange rates, boosting your retirement income.

Here’s how it works. When you sign up with Wise, you get access to local account details for different countries. For example, your own IBAN (International Bank Account Number) for Spain, or a UK account number and sort code. You don’t actually have to open a bank account in the country, as you can do everything from your Wise account.

You can use these foreign account details to receive your pension in the local currency, avoiding those awful exchange rates - which often have expensive mark-ups added on top.

Once the money lands in your Wise account, from which you can hold multiple currencies at once, you can convert to EUR or GBP at your leisure. The benefit of this is low fees for currency conversion, and the real, mid-market exchange rate. This could save you a small fortune, especially if you have a large pension pot.

With something as important as your pension pot at stake, security is crucial. Wise is strictly regulated and uses sophisticated security measures to protect you, your personal information and your money.

Of course, you don’t have to convert the currency at all. You can choose instead to hold onto it, and spend in the local currency in Spain and 200+ countries using your linked Wise debit card. This automatically converts currency at the fairest rate at the moment you spend, for a tiny conversion fee. But if you already have the currency in your account, you won’t pay a thing.

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After reading this guide, you should be all clued up on the state pension in Spain, including whether or not you’re eligible.

Remember to seek independent pensions advice if you’re unsure how to manage your pension, either in the UK or Spain, and enjoy your well-earned retirement!

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Sources used for this article:

1. Natixis - Global Retirement Index
2. Expatica - state pension in Spain

Sources checked on 17th April 2021