Cashing in a pension scheme: How and when should I take my savings?
When it’s time for your retirement, the only thing you really want is peace of mind. That’s why we want to tell you how to cash in all your savings and the capital sum from your pension scheme. This is one of the most frequent questions when people are closer to retirement and VidaCaixa helps you consider all the options available to take your money.
Remember that although retirement is the triggering event for withdrawing money from a pension plan, there is no requirement for you to take the money out at the moment you retire. You can continue making contributions to the plan while receiving your state pension, as long as you have not started to draw from the plan. The law does not allow you to be simultaneously paying into and withdrawing from it.
In addition, the amendment to the Regulations on Pension Plans and Funds establishes a new condition for withdrawing from a pension plan: from 2025 onwards, those with at least 10 years of contributions can access their savings. In other words, this applies to those who started making contributions from 2015 onwards.
When you set up a pension scheme, make sure you check all the terms and conditions, including everything related to claiming the capital sum and the ways you can take your money when the time comes. That way, you will know that the pension scheme can be claimed in several ways.
How to cash in a pension scheme: Tips and tricks
As a long-term saver preparing for a relaxing retirement, you can choose when and how to cash in your pension scheme. You can take it as a capital sum, i.e. all at once as a lump sum. Or you can take it gradually, as a monthly income to add to the state pension paid by the government. But it is also possible to take it in a mixed format. Let’s look at this in more detail:
- As a lump sum: If you decide to take the pension scheme in the form of a lump sum, it means receiving all of your savings in a single payment.
- As an annuity: This option allows you to decide on the frequency and amount you receive from your pension scheme. The most common option is to withdraw your savings on a monthly basis, although you can also choose quarterly, half-yearly or anything else. This is a form of partial redemption of the pension scheme, as you do not have access to all the money when you retire. You decide how frequently and how much you receive in each payment.
- In mixed form: In this case it is divided into one part as a lump sum and the rest as an annuity. The payout will still be partial, as you will decide how much you receive in a lump sum and how much you receive on a regular basis.
- As a life annuity. This is the option for those who do not want any surprises. Instead of cashing in the scheme until the money runs out, you reach an agreement with the institution to calculate and stretch out the money until the end of your life.
In all cases, the money will be included in earned income and not in savings income. And this is where the key issue lies in the taxation of the redemption of pension schemes.
Can I withdraw from my pension plan if I take partial, flexible or early retirement?
Except in the case of deferred retirement, where the person hasn’t effectively retired, it is possible to receive the pension plan benefits in all other retirement scenarios.
In other words, withdrawing contributions from a private retirement savings plan is possible under the flexible, active, and partial retirement schemes. In the case of deferred partial retirement, an explicit provision must be in place for this to be allowed. In all other cases, this is not necessary: the benefit can be claimed even if the pension plan does not explicitly include it.
Claim your pension scheme with VidaCaixa.
Plan well how you wish to claim your pension scheme! The key to making the most of your pension scheme from a tax point of view is to know how you will be taking the money considering needs and the amount of income received, and, especially, your needs and expenses. Remember that the higher the amount received every year, the higher the tax rate applied.
How should you manage your savings?
Pension schemes
Build a nest egg for your retirement to add to the state pension received from the government. Choose your retirement date or take it earlier depending on certain circumstances. Get important tax benefits. Find out about the different pension schemes available!
Life annuities
Turn your savings into a guaranteed lifetime monthly income. You can set it up immediately and take the money at any time if you need it, except under the transferred capital option. Enjoy an attractive return and tax benefits as well as liquidity at any time, guaranteed interest and the option to appoint one or two holders. Find out about all our life annuity products!
