By John Hayward
This article is published on: 13th September 2024
How to benefit from a little extra knowledge
What do the following statements have in common?
1. Fish have no memory.
2. You consume on average 8 spiders in your sleep.
3. Cracking your knuckles causes arthritis.
4. We only use 10% of our brains.
5. You have to pay into the Spanish social security system for 15 years to be eligible for a Spanish state pension.
The answer?
None of them are strictly speaking true. As I am close to clueless when it comes to biology, I will focus on the final point, state pension eligibility.
You will read on numerous websites that, in order to qualify for a Spanish state pension, you have to have paid into the Spanish system for at least 15 years and that two of these years must be within the 15-year period immediately preceding the pension claim. However, what is generally omitted from the text is the fact that years of contributions in other countries, including the UK (despite Brexit), can be added to the years in Spain. In order to pounce on any uncertainty which might be created by my statement, I will illustrate my point with an example:
– Years in the UK system – 22
– Years in the Spanish system – 10
Although 10 is less than 15, the 22 years of UK contributions takes the total number of years over 15, i.e. 32 (10 + 22). This does not mean that one claims 32 years from the UK, or even Spain, but, in this example, there will be an entitlement of 22 years’ worth of state pension from the UK and 10 years of Spanish state pension (as long as contributions were made to the Spanish system in 2 of the 15 years prior to claiming the pension).
As per the statement from La Moncloa, the office of the President of the Government of Spain, “As from 1 January 2021, the UK and Spain will retain their jurisdiction to manage Social Security benefits based on contributions made in their respective territories, under conditions of equality and non-discrimination.”
Furthermore, “The Protocol on Social Security Coordination sets forth the totalisation of contribution periods completed in the other Party for the recognition of retirement pensions”. This is not particularly friendly English but the point is there.
In order to find out more about pension entitlement, it is extremely helpful to be registered on Gateway for UK pensions and have a digital certificate to access information about the Spanish system. The digital certificate is also useful for other legal and tax enquiries, including SUMA and cadastral enquiries. It sits on your computer and allows immediate access to your information.
Although you can access projections as to your future pension entitlement, the story does not end there. Certain assumptions are made with these online facilities and you may not be provided with a completely accurate assessment of your entitlement. In the same way that accumulating years of contributions from different jurisdictions can solve the 15-year minimum term problem in Spain, it might also be the case that you can receive your Spanish state pension earlier than expected. The state retirement age in Spain in 2024 is 66 years and 6 months. This will gradually increase to 67 by 2027. However, if someone is able to show (in 2024) 38 years and 3 months of contributions, the retirement age is 65. This limit is increasing to 38 years and 6 months by 2027 and, presumably, there will be changes after that.
So let us take an example of the person who also paid for 22 years in the UK but, this time, an additional 17 years in Spain. Their default projected state retirement age is 67 in both the UK in Spain. Although the number of years paid overall will have no effect on the UK state pension age, it will do in Spain. As 22 plus 17 is 39, the person expecting to retire at 67 could actually receive their Spanish state pension at 65.
There are other rules and options with this i.e. deferring the receipt of the pension, continuing to work and receive 50% of the pension, etc., and from an income planning perspective, this could be beneficial.
We do not work for the tax office or a social security department but all of this is really important when planning ahead to determine cashflow, income, and even employment, requirements. Using tax efficient investment vehicles, and assessing existing pension arrangements, we can help you work out how much you need in retirement and how you can achieve your long-term financial and life goals.
There is so much information on the internet but not all of it is accurate. We make every effort to filter out the wheat from the chaff as we know how important it is to know the facts before committing to something. People have made bad choices in the past because they did not have all of the relevant information. The decision by the Scots to invade England during the Black Death was not one of the best.
