Assumptions for redeeming my pension plan in 2025

You’ve probably already read that as of January 1, 2025, you’ll be able to redeem your pension plan, so you won’t need to wait until retirement to touch money that will come in handy now. But before you make any moves you should do some informed thinking, as Brian Tracy would say.

The assumptions

As of January 1, 2025, there will be 7 scenarios in which you will be able to draw on the pension plan you signed up for to safeguard your well-being in retirement.

Retirement, either at ordinary age, early or later. It does not change anything with respect to how it was stipulated until now.

Suffering a disability. It can be a disability that disables you for your usual profession, but allows you to do another one(total and permanentdisability for the usual profession). It can also be a disability for any profession(absolute disability) or the so-called great disability, for which you need the assistance of another person for the essential acts of life.

Suffering from severe or high dependence.

Death, which would generate the right to widow’s, widower’s, orphan’s and other heirs’ or designated persons’ benefits.

Long-term unemployment. If you are unemployed, you can redeem your pension plan, as long as you have exhausted all the unemployment benefits to which you are entitled.

In case of serious illness: in case of ailments or injuries that temporarily incapacitate you for your usual activity or that partially or totally limit you.

10-year term. As of January 1, 2025, any pension plan with a term of at least 10 years may be fully or partially redeemed without penalty.

This is stipulated in Article 9 of Royal Decree 62/2018, which amended the Pension Plans Regulations: “The participants of the pension plans of the individual and associated system may dispose in advance of the amount, total or partial, of their consolidated rights corresponding to contributions made with at least ten years of seniority“. Therefore, as of January 2025, any pension plan can be redeemed under 4 conditions:

Must be a pension plan prior to 2015.

Redemption can be partial or total

There is no minimum or maximum redemption limit.

Can also be used for company plans

Beware of taxation

But before buying any pension plan, professional advice should be sought in order to take into account taxation. Pension plans are taxed as earned income, which means that the participant will have to pay tax on all the money he/she withdraws, regardless of the profit he/she has obtained and the contributions made.