GB versus Spanish Pensions

After contributing 35 years national Insurance, I am entitled to an annual pension of £5,500.  I also have an occupational pension of £19,750 I contributed about 7% of my salary and my employer contributed a similar amount to this company pension.

Now, I have seen on a trusted website that Spanish pensioners get a maximum state pension of £26,630.  Also, the average salary in Spain is only £23,491.  Are these figures broadly correct?  and are we comparing like with like?  I have a feeling that other countries state pensions are a combination of state and employer pension - can anybody confirm the position. please.

PS.  German and Swedish pensioners are supposed to get a state pension of over £26k, British pensioners are really the poor wo/men of Europe if these figures are anywhere near correct.

 I am not an expert but the UK certainly has very low pensions, though Spain for example does not have the add ons.   Other people, including those retired in Spain can best comment and I am sure they will - but I believe that Spanish pensions are linked to ones salary, up to a maximum.     

From what I have seen state pension in Spain  varies from 800-1000 euros a month depending on area. Surely not 26000 a year? If so ,no wonder Spain is in a state.

However, an occupational pension of £19,750 is mighty handsome !

 Actually I think the pension can be up to three quarters the final salary.    All government workers would be entitled to that kind of amount I am guessing.   The huge welfare and pension payouts are a problem for everyone in Europe - though sadly the southern European countries have problems collecting the taxes to help to meet the costs.

My neighbour gets around 3k a month, 14 x  a year & he is retired early through ill health.

For self-employed the maximum monthly pension obtainable is around 75k assuming you havepaid in at the maximum monthly soc. security rate which is circa 1600€.

There isn't much in the way of private pensions.Very , very few spaniards have them.

35,320.46€ / year is the maximum employed person rate :

from here.

http://www.empleo.gob.es/es/guia/texto/guia_13/contenidos/guia_13_37_3.htm

Thank you all for your replies.

 I feel we are not comparing like with like when it comes to state pensions.  I am getting the impression that the Spanish workers pay a much larger amount towards their state pension than we in the UK.  In fact they may be paying in the equivalent of our national insurance and private pensions contributions.  That may explain why very few bother with private pension schemes and why their state pension is so good.

Does an employee and their employer pay a percentage of earnings into their employers state pension schemes and if so, approximately what percentage.  If not, who decides how much to pay in?

What happens to women who have never worked outside the home, do they get any pension?

Guslopez:

You mentioned that  35,320.46€ per year is the maximum employed person rate.  Is there a way of calculating the salary you would need to be earning and the percentage you and your employer (assuming they contribute) would need to contribute to receive this pension?

Your neighbour gets €43k per annum, was he self employed to get over the maximum employed person rate or, does he get ill health benefit?

 I am intrigued by why you want to know such details?    I have a passing interest, but I am not that bothered about the specifics - since I will never qualify for a Spanish pension that is.     

No, the spanish workers pay far less than a UK employee but the employers contribution is 35%. That is why no one wants to employ anyone on a full contract. In actual fact the employee pays about 14/15% of what the employer pays. So if the employee is earning 1000€/month he would pay around 50€ & the employer 350€..

For self-employed people it is the complete opposite. General workers pay 29,8% of earnings with a minimum base of around 900€ . I.E they have a minimum payment of around 270€/month. People like doctors, dentists, etc; are assumed to earn more each year & have there conributions increased automatically, whereas no one else pays much morethan the minimum rate as they don not declare much more thn the minmum amount & this is where the 'black economy' comes from. If say ,you are an electrician & clearing 5k a month you aren't going to want to pay soc.secs. of 1500€ , are you ?= So not many do.

The foregoing does not includeagricultural workers who pay a much lower rate as do domestic cleaners , who pay about 40€/month & then there is also 'venta ambulante' , itinerant traders, market traders .etc; who have a minmum rate around 160€/month & probably also don'tpay much more.

1 through the books 3,4,5 etc; in the pocket. That's what they majority all do.

Basically here the system is the complete opposite of the UK. The employees pay very little & the employer pays a fortune & self-employed are expected to pay collosal amounts.

So basically the self-employed pay approx. 20% of what they actually earn & the employers , employ as few as possible & in some cses only declare 50% of the wages paid to the employee whilst paying the other 50% to the employee in cash.

The whole lot is so complicated that even many , so called 'gestorias' don't understand the system. I know one English woman who is a market trader & was paying the general rate , until  told , some 100€ + /month too much & all because the gestoria didn't know there were multiple rates !!!

There's no hope !!

No, my neighbour always expresses it as though it was over 12 months . He gets the maximum rate but divided by 14.

guslopez

Thanks for supplying the information and answering some of my questions.  You certainly seem to have a complicated system.  You must employ a great number of tax inspectors and accountants in Spain. 

If I worked in Spain, earning 30k euros per annum, in a lower management type job, the employer would pay 35% towards my state pension, would I pay 14% .

If  employers do not want to employ people on full term contracts, how are employees going to build up a pension?

If you never worked, do you get any pension in old age?

Do you contribute to any health carescheme, either private or state run and is that a percentage of earnings

What percentage income tax do you pay.  In the UK we get a personal allowance of £9,440 up to £ 10,500,  which is not subject to tax and we pay 20% tax on earnings up to  £32k, .any earnings over £32k is subject to 40% tax..

Do you have any extra benefits for pensioners like:  free or reduced rate travel, free health care or prescriptions; free electricity, telephone, tv licence' heating allowance (£200 in UK). free eyesight tests. 

Roly2:  I saw a table on the Which website which shows the maximum state pension and average earnings for 15 countries and Spain was top for pensions.  That is why I'm trying to establish if we are comparing the same thing.

No , I believe it is 4,70%

The employees lose out on pensionbenefits but go along with it as they want to keep there jobs.Even in the good time it was the same. worse now.

According to the Spaniards , No you don't gey apension if you don't pay in but hidden away & hardly ever mentioned there is in fact a non-contributory pension available , albeit t a much lower rate.

No. Most Spaniards use the state health system & combine that with privatemedical care which is widely available in most tons. You can find loads of private doctors dealingin everything in most spanish towns & they have the state of the art equipment to go with it.

Here are tax rates & personal allowances.

http://www.advoco.es/hot-topics/102-spanish-income-tax-rates.html

Bear in mind though that in tha region of Murcia,, where I live, some years back they stated that 85% of the population were 'miluristas', people who earn 1000€ or less a month. These people , although having tax deducted at souce if mployd would receive it all back when making their tax declaration the following june.

In addition I recall reading an article back in the 'good times' that stated that 80% of all spaniards ,whether employed or self-employed , ventually reclaimed all ta deducted. I.E. only 20% of working population paid any tax at all. The majority came from employers & company tax.

The only benefit to pensioners that I know of is a 'sesentycinco' (65) card, which you have to apply for, which many local councils offer which accords free bus travel. Unfortunately that assumes that there is actually a bus service. Whch there isn't where I am, 4kms outside of town ! There is no free electricity, healting allowances , etc.

Eyetests are free for everyone & only charged for if you do not buy & want to take prescription elsewhere.

 For the general social security system, the employer and employee's contribution percentages (of 33 and 4,7%) are not applied to the salary of the employee but to the tariffs published by the authorities every year which vary according to the category level of each employee.  

These contribution cover not only future pensions but also health insurance, unemployment insurance, etc.

Pensions payments are calculated once the employee reaches retirement age on the basis of number of years where contributions were made to the system and amounts of such contributions.  To obtain the maximum annual current state pension of €36,500 the contributions need to have been made for a minimum of 33 years.  Currently, only the contributions of the last 15 years before retirement will be taken into consideration to determine the amount.  To obtain the mentioned maximum annual pension, the contribution of these last 15 years must have been made at the highest possible tariff base.  Otherwise, the maximum pension will be reduced accordingly.

In the web site of INSS (Instituto Nacional de la Seguridad Social) there is a simulator application that allows you to calculate what your pension will be depending on your particular circumstances.

By way of example, in my own situation, I retired at 65 years of age after having contributed to the system for 31 years (2 less than the required amount for the maximum pension) and thus my pension is 96% of the maximum.  As to the amount,  in my last 15 years, I was under the general SS system for the first 7 of those years and as self employed for the last 8).  Under both systems I was under the maximum tariff bases.  My monthly contribution in the last several years of my self employed contributions was in the area of €900 per month.  As mentioned these bases are set annually and they could be higher right now.

My annual pension is divided into 14 installments, one per month and one extra payment in July and December.  Withholding tax is deducted from the gross amount each month (approximately €450 per month) and depending on the amount of my annual total income (which varies each year), I may get a refund of a small amount of the tax withheld or have to pay additional tax with the annual income tax return.  Due to the recent tax increases, in the past two years, I have had to pay additional tax.  My net pension per month is currently €2,100 in most months and €4,200 in July and December.

The INSS website contains all the details for calculating what a pension will be depending on the circumstances although as far as I know this is only available in Spanish.  If professionals make mistakes, it is not only because the system is complex (which it is) but most likely because the professional did not make the appropriate research or kept up to date.

Finally, all of the current system is under review by the Government.  Apparently, the current system which is not a capitalized scheme but rather more like a Ponzi scheme where the current contributions cover current payouts is not sustainable in the future because with the very high unemployment rate, there are less and less people contributing to the system than there are payouts.  They have already increased retirement age from 65 to 67 and now they are considering increasing it to 69.

In normal circumstances, you do not get a pension if you have not contributed to the system, but there are some non-contributory pensions available to people in special circumstances.

There are some benefits to pensioners:  medicines used to be completely free but now the pensioner needs to pay a (small for the time being) part of the cost of medicines, free or very reduced admissions to museums and cultural events, reduced fare golden cards for train travel, free services on many municipalities, among others).

There are income tax redutions on contributions to private pension plans so more and more people are now making use of this option.  I started a private pension scheme in the late eighties which fortunatelly I have not disposed of yet as disposing of it will trigger the payment of about 50% of the income tax originally saved, but it gives me some financial security to know it is there in case of a financial emergency.

I hope this helps you in your queries.

 Lobin

EXCELLENT COMMENTARY - really helpful, informative, concise and well written.

Many thanks for the time you have taken.

Guslopez

Thanks again for replying to my post.

I feel that the Spanish tax system is in a chicken and egg situation,  The employee avoids paying tax because the tax rate rate is too high and the government has to set the rates high because so many employees are not paying tax or not paying the correct amount.  To add to the problem, the employers are under reporting their employees earnings to avoid paying too much state pension insurance at 35%  (I don't know what it;s called in Spain).

I now wonder how good or bad the Spanish state health system is - could you be treated by a doctor and in hospital for any illness without taking out health insurance or paying a private fee.

Additional pensioners benefits in the UK: free prescriptions, free eye tests, £200 heating allowance, free travel in your local area, free TV licence from age 75.

Pensions in Ireland get: free travel on bus or train anywhere in the country, allowance for electricity and phone, and free Tv licence. Healthcare is means tested, meaning only those who can afford it have to pay.  The Irish state pension is £10,415, according to the Which article and the average salary is £41,803.  Denmark's figures are very similar to Ireland but I have no idea how much is paid into the system nor the additional benefits they receive.

Lobin

Thank you so much for such a long and informative reply,  Did you work in an accountancy role or are all Spaniards accountants to keep ahead of their governments complicated system?

Now I just have a couple of queries which I hope you will be willing to answer or point me to a website where I may find the answer:

You said "The 33% and 4,7% are not applied to the salary of the employee but to the tariffs published by the authorities every year which vary according to the category level of each employee".  I originally thought the 33% and 4.7% was applied to the full salary and do not have any idea of what the tariff means except that it applies to different types of job.

I presume the cleaner and dustman are in a lower tariff, waiters, chefs, receptionists, office worker types in a different tariff and so on until we reach a CEO or similar.

You said "only the contributions of the last 15 years before retirement will be taken into consideration to determine the amount"  I presume this means that all years of contributions will be counted.  So it will be total years X contributions of last 15 years. 

My occupational/company pension is based on my last years salary which is good for me as I was promoted a few years before I had to retire on health grounds. I now have to wait until March 2019 to receive my state pension (currently £5,500) as a result of the government first equalising the pension age for women at mens age of 65 and then gradually increasing it to 66 by October 2020. for both sexes.  I believe they plan to increase it to age 67 by 2036 and age 68 by 2046, although I expect the latter will be escalated.  We are also in a ponzi situation.  We have fewer people working than the numbers receiving pension and those paying tax and national insurance today are paying for todays pensions.

July and December: I like the way your government save for your summer holiday and for Christmas.  Is this a popular move or would you rather have it paid in equal payments?

Lastly, you seem to have a decent pension and that is before you draw down your private pension.  I know my payments to my company pension fund was tax free, but I do not have to pay back that tax.  However, my pension is subject to normal income tax rates, which I believe is fair. 

I hope your country finds a way out of it's present difficulties and hope they simplify the tax and social security system at the same time.  A country with over 25% unemployment is not going to be able to afford to be generous to it's pensioners.

http://www.seg-social.es/Internet_1/Trabajadores/CotizacionRecaudaci10777/Basesytiposdecotiza36537/index.htm

http://www.seg-social.es/Internet_1/Trabajadores/CotizacionRecaudaci10777/Basesytiposdecotiza36537/index.htm#36538

http://www.seg-social.es/Internet_1/Trabajadores/CotizacionRecaudaci10777/Basesytiposdecotiza36537/index.htm#36550

You can locate other things using the headers at the top.

I'm absolutely amazed at the generous pensions in Spain;I knew they were higher but not that high for the maximum.No wonder Spain is in a state. No such thing as a poor Spanish pensioner then! It's the the English pensioners who deserve the sympathy, who used to have to work 44 years for a full pension, in the days when company pensions were not the norm. Irish pensions are much higher than I thought, as well. I've always known that The UK pension was  among the  poorest in Europe, but last year the government hailed the much trumpeted rise of £5 a week as the hugest ever! How sick that sounds! Apparently the average  salary in Uk is £25,000 per year-bet they'd love to be a Spanish pensioner at the high rate. The references to pensions of 43000 etc sound like lottery wins;Given that some say how cheap it is to live out here, I have this vision of some such pensioner sipping his wine on his terrace, while his savings zoom,( how can he spend so much  in the years he has left?) while wondering how he can legally evade/avoid the high income tax!

I paid my national insurance contributions so that I could have NHS treatment without paying at the point of delivery and so I could have the paltry state pension when I reached 60 - now I have to wait until I'm nearly 66 before I receive it.  I also paid 7% of my salary to my company pension scheme in order to have a comfortable retirement.  Many people I know did not pay into a company pension, where the employer also has to contribute, instead they had a lavish lifestyle of, fancy vehicles, meals out a few times a week and at least a couple of holidays abroad, each year.  Some have very expensive homes which they could downsize from and buy an annuity for their future. Some were self employed and despite getting paid shed loads of money for many years, never paid into any pension scheme.  They now receive benefits and complain about those who made provision for their retirement.  Who is the mug?

Not all Irish pensioners receive a full state pension, it is more likely to be those in constant employment and where they had no choice to contribute towards their 'stamp'. Also, not all employees receive the very high average salary mentioned in the Which article.  Salary averages also include the fat cat bankers and high level civil servants.  My friends nephew works in quite a lowly job in the Irish civil service and he earns about 28k euros a year, this is with a university degree. 

You are right about the paltry pension! How can the UK government justify it when other countries have a pension that ensures a decent standard of living?

No wonder all these on humungus pensions out here aren't worried about the increase in iva or utility rises, price of a loaf or a butane bottle-the rise could be 10 times as much and they'd still be as smug!

 Because in the UK we went down the welfare route - with money being poured  in to support everyone.