# The true cost of being self-employed in Spain



## xabiaxica (Jun 23, 2009)

Whenever I’ve told anyone just how much it really costs to be self-employed here, & how much I have to earn each month before I can even think about paying rent, eating etc., they’ve looked at me as if I’m crazy.
Maybe I AM crazy – but this shows that I’m telling it as it is_._
And explains why I work so many hours. And maybe why I charge more than some others who do the same as me, but aren’t registered.
I’m working legally – they aren’t.
You don’t need to read Spanish to be able to understand the table.
This system NEEDS to be changed!










This article is about a blog post which has gone viral, & links to the original post ...... 'CuÃ¡nto tiene que ingresar un autÃ³nomo para ganar 938â‚¬ al mes': el post que se convirtiÃ³ en viral | Verne EL PAÃ�S


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## Gazeebo (Jan 23, 2015)

Is it correct that being self-employed you have pay a certain amount monthly, regardless of whether you make a profit?
Unfortunately, people who go under the radar are evident in everywhere. In England, as well as being employed as a lecturer, I had a wedding hire business. When I decided to retire and come to Spain, myself and my businss partner closed the business. However, I think we would have anyway because the market was flooded with those who were doing it 'for pocket money' and not declaring it. We set up a company and had an accountant, but it was getting harder and harder to make any money because of people under the radar offering services for cheap cheap cheap, because they did not have our overheads, so I understand where you are coming from.


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## xabiaxica (Jun 23, 2009)

Gazeebo said:


> Is it correct that being self-employed you have pay a certain amount monthly, regardless of whether you make a profit?
> Unfortunately, people who go under the radar are evident in everywhere. In England, as well as being employed as a lecturer, I had a wedding hire business. When I decided to retire and come to Spain, myself and my businss partner closed the business. However, I think we would have anyway because the market was flooded with those who were doing it 'for pocket money' and not declaring it. We set up a company and had an accountant, but it was getting harder and harder to make any money because of people under the radar offering services for cheap cheap cheap, because they did not have our overheads, so I understand where you are coming from.


yes that's right - the Cuota de S Social is a fixed cost & has to be paid every month regardless of your income - & income tax is a percentage

& that's from your *gross income* - regardless of whether or not you make a profit


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## Lynn R (Feb 21, 2014)

It must be absolutely infuriating to see others working on the black and having none of these costs.

Could you earn the same net amount or more as a salaried employee teaching Spanish?


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## Pesky Wesky (May 10, 2009)

Lynn R said:


> It must be absolutely infuriating to see others working on the black and having none of these costs.
> 
> Could you earn the same net amount or more as a salaried employee teaching Spanish?


Highly unlikely.

I keep thinking about joining the ranks of the academies because as an English teacher in a good one with paid holidays I'd probably be better off.
However, I wouldn't get the classes that I've got now which are more interesting to me and I woudn't be able to do the kind of classes that I do probably.


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## xabiaxica (Jun 23, 2009)

Lynn R said:


> It must be absolutely infuriating to see others working on the black and having none of these costs.
> 
> Could you earn the same net amount or more as a salaried employee teaching Spanish?


Yes it's infuriating 
Even more so when some charge MORE than I do! Most charge less though. I lost a few potential students last year. They had booked to join a new beginner group & then someone in a nearby town started offering classes at 3€ an hour - they lived halfway between the two towns so decided to go there. Not before they asked me if I'd drop my rates to 3€ though  

I declined.....

None of the academies in my town offer contracted employment - though several have offered me a partnership......

I doubt I would earn more if there was salaried employment - when I did work for an academy here, I earned a flat rate per hour, regardless of whether I was teaching one to one or a group of 10. All the teachers at that academy were self-employed. 

About half of my teaching hours are to groups of students, and of course they all pay an hourly fee ( a lot less than if they were coming one to one of course ) so that's pretty lucrative for me  

I have 9 groups atm of up to 8/10 students. 5 are full  They do a class of 1.5 hours


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## Lynn R (Feb 21, 2014)

Oh well, at least it's not all doom and gloom being self-employed if there are some advantages

Your classes are obviously in demand so as far as the students who left are concerned, I guess it's their loss as the other teacher probably won't be as good.

In terms of the high SS contributions, does paying them as an autonomo mean you get a state pension as well as healthcare?

If so, I suppose it's a difficult balancing act for any Government as reducing contributions too far might mean state pensions and healthcare become unsustainable. I know the UK Government pays Spain approx €4K per year for each British pensioner with an S1, which presumably is based on some kind of average cost per person per year for healthcare. Pensioners probably use more in terms of resources than the average person of working age, but then again someone paying autonomo contributions could be getting healthcare for a family of 4 or more, couldn't they?

How much would a salaried employee be paying (counting the employer's SS contribution for them as well) in SS per month on the same level of earnings as quoted in your link?


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## Simon22 (May 22, 2015)

Is there any way to check if someone is legal or do you have to accept their word on it?


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## Pesky Wesky (May 10, 2009)

Simon22 said:


> Is there any way to check if someone is legal or do you have to accept their word on it?


I have to provide companies with the bank receipt which states that the monthly payment has been made. It's called the *justificante de pago a la seguridad social*. You can ask for it, but any manual worker will probably look at you as if you're crazy. In an office situation it may be more normal to provide this information


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## Pesky Wesky (May 10, 2009)

Lynn R said:


> Oh well, at least it's not all doom and gloom being self-employed if there are some advantages
> 
> Your classes are obviously in demand so as far as the students who left are concerned, I guess it's their loss as the other teacher probably won't be as good.
> 
> ...


If pensions are still being paid when I retire I'll get one, but I'll be relying on my savings, like many others I suppose, not the pension to get me through.
In addition to xabichica's info I'd like to point out I get a lot of what I pay paid back when I make the tax declaration. I prefer to have it myself right from the start however, so that I could be earning interest on it and not the government


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## xabiaxica (Jun 23, 2009)

Simon22 said:


> Is there any way to check if someone is legal or do you have to accept their word on it?


there are various websites in which you can put a NIE/NIF number to check if a person is self-employed - they aren't foolproof though 

If anyone asks me I can show them my paperwork - I'd say that if anyone isn't prepared to do so, then they probably aren't


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## Pesky Wesky (May 10, 2009)

xabiachica said:


> there are various websites in which you can put a NIE/NIF number to check if a person is self-employed - they aren't foolproof though
> 
> If anyone asks me I can show them my paperwork - I'd say that if anyone isn't prepared to do so, then they probably aren't


I didn't know about the websites. I would imagine you'd have to have some kind of ID, or the person's DNI, wouldn't you?
What paperwork do you have to show that you are self employed?

Another way of finding out if the person is legal or not is to say that you need an invoice and that you'll be presenting the info to the tax offices in your tax declaration... Companies say that to me all the time, but the same goes for individuals


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## Lynn R (Feb 21, 2014)

Pesky Wesky said:


> If pensions are still being paid when I retire I'll get one, but I'll be relying on my savings, like many others I suppose, not the pension to get me through.
> In addition to xabichica's info I'd like to point out I get a lot of what I pay paid back when I make the tax declaration. I prefer to have it myself right from the start however, so that I could be earning interest on it and not the government


I thought the state pension in Spain was pretty decent, provided enough years' contributions have been paid?

We know a British guy here who worked as a self-employed builder for a number of years and (unusually, I have to admit) was registered and paid autonomo contributions. He fell seriously ill, had leukaemia and got a bone marrow transplant, and has other health conditions, and has not been able to work for at least 5 years now. He has told us he receives €900 per month in disability benefit, and that's for a single person with no family commitments (we had been wondering how he was managing to survive). I bet he's glad he did the right thing and paid his SS.

Interest? You'll be lucky! I've almost forgotten what interest on savings looks like, in this day and age.


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## xabiaxica (Jun 23, 2009)

Pesky Wesky said:


> I didn't know about the websites. I would imagine you'd have to have some kind of ID, or the person's DNI, wouldn't you?
> What paperwork do you have to show that you are self employed?
> 
> Another way of finding out if the person is legal or not is to say that you need an invoice and that you'll be presenting the info to the tax offices in your tax declaration... Companies say that to me all the time, but the same goes for individuals


yes, you need their NIE/NIF

I have the papers I signed when I first became self-employed - but I guess I could have stopped & no-one would know - hadn't thought of that 

I do have a complaints book - it's never been asked for

yes, asking for a proper invoice is the final proof really

I once bought something online from a guy here in Spain - I'd bought from him previously & not been bothered about an invoice, but this time I needed one because it was for my work

I asked for an IVA invoice, & he said that he 'didn't have to be registered because his income was less than x amount' . I explained to him that it doesn't work that way here but he was adamant. I put the 'invoice' he gave me through, & my gestor checked the 'company' out & it wasn't registered in any way.

Obviously I couldn't put the invoice through after all

The company disappeared not long after that - I heard that a lot of people had had the same problem as I had


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## Pesky Wesky (May 10, 2009)

Lynn R said:


> I thought the state pension in Spain was pretty decent, provided enough years' contributions have been paid?
> 
> Did you?
> 
> ...


+++


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## Pesky Wesky (May 10, 2009)

xabiachica said:


> yes, you need their NIE/NIF
> 
> I have the papers I signed when I first became self-employed - but I guess I could have stopped & no-one would know - hadn't thought of that
> 
> ...


I had some work done on the car, went with the guy who offered me a really good rate plus a car for two days. I stupidly didn't ask about payment, but of course it was cash in hand. I was so annoyed I hadn't gone with the legal guys around the corner


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## Lynn R (Feb 21, 2014)

Pesky Wesky;8496138 Did you?[/QUOTE said:


> So how much would it be, then? According to information I've seen on websites, the minimum pension a person would receive if they have paid 15 years of SS contributions would be approx €8,500 per year. So presumably someone who has paid contributions for longer than that would get more?
> 
> Supposedly, state pensions in Spain are the second highest in Europe, after Greece.
> 
> ...


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## gus-lopez (Jan 4, 2010)

Lynn R said:


> How much would a salaried employee be paying (counting the employer's SS contribution for them as well) in SS per month on the same level of earnings as quoted in your link?


Far less. Maximum soc.sec for the employee is under 5% in total regardless of earnings. Mind you the employer has to pay an additional 29,8% for each employee's earnings. That is why the employer often likes to pay half in cash & half through the books..


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## gus-lopez (Jan 4, 2010)

My neighbour , who is 62 has been pensioned off for long before I moved here 13 years ago , gets the maximum monthly amount which is around 3000€.


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## Lynn R (Feb 21, 2014)

gus-lopez said:


> Far less. Maximum soc.sec for the employee is under 5% in total regardless of earnings. Mind you the employer has to pay an additional 29,8% for each employee's earnings. That is why the employer often likes to pay half in cash & half through the books..


But that means that the total SS contribution for each employed person is around 34% of earnings, then (even though the vast majority of it is paid by the employer).

In the case of self-employed people, of course, the whole contribution must be met by the individual.

What I'm driving at is the fact that the contribution needed per person, whether it be a salaried worker or self-employed, still needs to be pretty high if present standards of pensions, healthcare and disability benefits are to be maintained. I know it's a lot of money coming out of people's earnings every month (I think my take home pay used to be about 30% less than the gross amount) but at least they're not paying it and seeing no return for it.


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## Isobella (Oct 16, 2014)

According to many articles in Spanish newspapers most people in Andalucia get an average pension of about 500€ per month. There was one report that went around Malaga interviewing pensioners asking them. Funcionarios etc. Do very well but average workers haven't been able to fulfill the unbroken time required. Still, statistics don't lie do they.

I thought that a factura with a IVA no. Was proof that someone was registered. We were told to save the bills in the eventuality of selling the house.


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## Lynn R (Feb 21, 2014)

According to more up to date figures, the average retirement pension in Spain is now over €1,000 per month (€800 per month in Andalucia) although this article does point out that the average pension paid to autonomos is much lower, only €688 per month.

La pensión media de jubilación: 1.020,80 euros | Economía | Cinco Días


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## gus-lopez (Jan 4, 2010)

Lynn R said:


> But that means that the total SS contribution for each employed person is around 34% of earnings, then (even though the vast majority of it is paid by the employer).
> 
> In the case of self-employed people, of course, the whole contribution must be met by the individual.
> 
> What I'm driving at is the fact that the contribution needed per person, whether it be a salaried worker or self-employed, still needs to be pretty high if present standards of pensions, healthcare and disability benefits are to be maintained. I know it's a lot of money coming out of people's earnings every month (I think my take home pay used to be about 30% less than the gross amount) but at least they're not paying it and seeing no return for it.


Yes you are quite right that the overall contribution is roughly the same..........Well it would be if the employers paid it, which they won't. Friend of mine years ago used to get 350€ through the books & 1150 in cash !! 
This is why the employers refuse to offer full contracts , even to people who have been on temporary ones for 2 years. Any who complain that legally they should go on to a 'contrato indefinido' won't have a job.

I agree that the income they require to maintain the pension /health etc ; needs to continue at the present rate but for the life of me I cannot see how they are ever going to get people to pay soc.sec contributions that for a self-employed person gave them nothing except pension/healthcare whilst the employed person, contributing less, got unemployment etc. Unless they come up with some way forward then I can see another 50 years of this.

I commented recently, to a friend who used to live here & ran a business that he had to close in 2009 having entitlement to nothing from the state even after paying in for 7 years, that things might improve when those working abroad return, but I doubted that they would. He confirmed that all those he knew in the UK stated that they'd only return to retire !! & that is exactly what most I spoke to in the Uk during the summer said.


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## Chopera (Apr 22, 2013)

xabiachica said:


> Whenever I’ve told anyone just how much it really costs to be self-employed here, & how much I have to earn each month before I can even think about paying rent, eating etc., they’ve looked at me as if I’m crazy.
> Maybe I AM crazy – but this shows that I’m telling it as it is_._
> And explains why I work so many hours. And maybe why I charge more than some others who do the same as me, but aren’t registered.
> I’m working legally – they aren’t.
> ...


The cost of being self employed really shows up the Spanish state pension system for the Ponzi scheme that it is. By Ponzi scheme I mean an "investment scheme" that falsely gives the impression that it is doing better than it is by using the money "invested" (i.e. paid in) by people to pay out higher returns to those withdrawing from the scheme early, therefore encouraging more people to pay in. In the private sector these are generally illegal (Bernard Madoff was imprisoned for life for running one), but of course governments can make up their own rules when it comes to their own finances.

Typically in a Ponzi scheme those who withdraw from the scheme first do well, and those who withdraw last find there is no money in the scheme left to withdraw. And this is exactly what is happening with the Spanish state pension system...

Those who are already retired are being excessively paid out from money being paid into the state pension by those who are working, but as this is unsustainable, those paying in will see far fewer benefits in relation to the amount they pay in.

In fact you now have to work for 15 years before you can claim any state pension at all. It wouldn't surprise me if some people feel they'll never work that many years and decide they might as well be paid cash. I don't blame them.

The obvious way round the problem is to allow people to opt out of the Spanish state pension system. Let them start up their company and invest for their future themselves, without having to pay into it. However the Spanish state pension is so underfunded the government probably thinks it can't afford to let people opt out, even if it means they end up working on the black market anyway. On top of that the private pension system in Spain is poorly regulated and gives few tax breaks, so people don't really have an alternative.


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## Lynn R (Feb 21, 2014)

Chopera said:


> In fact you now have to work for 15 years before you can claim any state pension at all. It wouldn't surprise me if some people feel they'll never work that many years and decide they might as well be paid cash. I don't blame them.


Not true. There is the minimum state pension (which has not been abolished) paid to people who have not been able to make 15 years of SS contributions (or any at all). It's very small, though -€4756 per year (14 payments of €340 per month).

Spanish pension benefits


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## Chopera (Apr 22, 2013)

Lynn R said:


> Not true. There is the minimum state pension (which has not been abolished) paid to people who have not been able to make 15 years of SS contributions (or any at all). It's very small, though -€4756 per year (14 payments of €340 per month).
> 
> Spanish pension benefits


OK it's 15 years before you claim any contributory state pension, but it doesn't really affect my point. Most people would be better off stuffing money under their mattress rather than paying into the Spanish state pension, but they don't have a choice because they have to fund the pensions of those who have already retired (usually early). In fact that link says the government may raise it to 20 years. If that happens then anybody over 47 considering moving to Spain can forget about receiving more than 4,756€ a year, regardless of how much they pay into the system. The same for anybody who decides to permanently emigrate from Spain under the age of 55, even if they've paid in for 30 years.


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## Lynn R (Feb 21, 2014)

Chopera said:


> OK it's 15 years before you claim any contributory state pension, but it doesn't really affect my point. Most people would be better off stuffing money under their mattress rather than paying into the Spanish state pension, but they don't have a choice because they have to fund the pensions of those who have already retired (usually early). In fact that link says the government may raise it to 20 years. If that happens then anybody over 47 considering moving to Spain can forget about receiving more than 4,756€ a year, regardless of how much they pay into the system. The same for anybody who decides to permanently emigrate from Spain under the age of 55, even if they've paid in for 30 years.


So the full autonomo SS contribution is say €260 per month (part of which must go to fund healthcare, unless you are suggesting that people should be able to opt out of that as well - not so good for anyone who has pre-existing conditions). If people saved say €200 per month (after deducting €60 for healthcare, the same amount which the convenio especial would cost) (and would they, really, if they complain they can't afford to pay that amount every month?) that's €2,400 per year. You'd have saved €72,000 after 30 years. Even with investment returns (which can fluctuate as we all know) that amount wouldn't be enough to provide anybody with a decent pension over 20 or 30 years of retirement.


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## Chopera (Apr 22, 2013)

Lynn R said:


> So the full autonomo SS contribution is say €260 per month (part of which must go to fund healthcare, unless you are suggesting that people should be able to opt out of that as well - not so good for anyone who has pre-existing conditions). If people saved say €200 per month (after deducting €60 for healthcare, the same amount which the convenio especial would cost) (and would they, really, if they complain they can't afford to pay that amount every month?) that's €2,400 per year. You'd have saved €72,000 after 30 years. Even with investment returns (which can fluctuate as we all know) that amount wouldn't be enough to provide anybody with a decent pension over 20 or 30 years of retirement.


How many years to do you have to work/contribute to claim the minimum state pension (currently €4,756 a year)?


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## Lynn R (Feb 21, 2014)

Chopera said:


> How many years to do you have to work/contribute to claim the minimum state pension (currently €4,756 a year)?


According to the Junta de Andalucia website, even people who have never contributed are entitled to it (from what I can gather it requires a claimant to have been resident in Spain for at least 10 years and not to have any other income above c. €5,000 per year).


Junta de Andalucía - Pensiones no contributivas de la Seguridad Social


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## Chopera (Apr 22, 2013)

Lynn R said:


> According to the Junta de Andalucia website, even people who have never contributed are entitled to it (from what I can gather it requires a claimant to have been resident in Spain for at least 10 years and not to have any other income above c. €5,000 per year).
> 
> 
> Junta de Andalucía - Pensiones no contributivas de la Seguridad Social


So, generally speaking, you receive no additional return from the state pension until you have contributed for 15 years. If your situation is such that you might not contribute more than 15 years in total before retirement (e.g. because you are a migrant worker, long term unemployed, etc) then you will receive no additional return for those 15 years contributions. You might as well not pay them.

After 15 years you are entitled to €8,229 a year, i.e. €3,473 more than if you hadn't made any contributions.

So if an autonomo contributes for 15 years then assuming €200/month goes to the state pension, they'll have contributed €36,000. At €3,473 a year that money would last them over 10 years. I'd rather have the money.

But yes at some point the returns will be worth it, as things stand, at least that's what I hope for because I plan on paying in for 30 years before retirement. But I have already been paying in for 11 years and (hopefully) things won't change too much by the time I retire. I wasn't one of the last people to enter the Ponzi scheme (hopefully). 

But anybody starting work now must think to themselves that they'll only begin to see any kind of return on what they've paid in until they have contributed at least 20 years, possibly more by the time they retire, based on current trends. If a private fund manager came up to most people and offered them the kind of investment on offer from the Spanish government they'd run a mile. Unfortunately that's not an option.


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## snikpoh (Nov 19, 2007)

Lynn R said:


> According to the Junta de Andalucia website, even people who have never contributed are entitled to it (from what I can gather it requires a claimant to have been resident in Spain for at least 10 years and not to have any other income above c. €5,000 per year).
> 
> 
> Junta de Andalucía - Pensiones no contributivas de la Seguridad Social


WOW!!!!

So any expat with an income of less than €5k per year, after 10 years can claim a Spanish pension?

Surely there must be other restrictions?

... but then the UK state pension is around €9k per year (minimum) so I guess that rules out expats.


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## Lynn R (Feb 21, 2014)

Chopera said:


> So if an autonomo contributes for 15 years then assuming €200/month goes to the state pension, they'll have contributed €36,000. At €3,473 a year that money would last them over 10 years. I'd rather have the money.


But with current life expectancy, most people will be in retirement for far longer than 10 years. What do they do when their €36,000 has run out? 

Fund managers are wont to promise people the earth. But up to now, lots of people have had cause to regret believing them. Some get lucky, some don't. If there happens to be a stock market collapse just before you are due to retire, whatever they promised you can turn out to be a lot less than you were expecting But a state pension is guaranteed, until you die.


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## Lynn R (Feb 21, 2014)

snikpoh said:


> WOW!!!!
> 
> So any expat with an income of less than €5k per year, after 10 years can claim a Spanish pension?
> 
> ...


Exactly, expats (especially since the rules on having sufficient financial resources in order to register as resident were introduced) would not qualify.

Read the Junta de Andalucia link. It does not state any stipulations whatsoever other than those relating to other sources of income, and the need to have been resident in Spain for a minimum number of years. I suspect there must be some - surely a person would have to have been officially registered as unemployed, for example? But it does not say so.


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## Lynn R (Feb 21, 2014)

Chopera said:


> +
> After 15 years you are entitled to €8,229 a year, i.e. €3,473 more than if you hadn't made any contributions.
> 
> So if an autonomo contributes for 15 years then assuming €200/month goes to the state pension, they'll have contributed €36,000. At €3,473 a year that money would last them over 10 years. I'd rather have the money.


Can you find an investment which would pay you €8229 a year for the remainder of your life for a total investment of €36,000? If you can, would you care to share it with the rest of us? I think you'd be killed in the rush.


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## Chopera (Apr 22, 2013)

Lynn R said:


> But with current life expectancy, most people will be in retirement for far longer than 10 years. What do they do when their €36,000 has run out?
> 
> Fund managers are wont to promise people the earth. But up to now, lots of people have had cause to regret believing them. Some get lucky, some don't. If there happens to be a stock market collapse just before you are due to retire, whatever they promised you can turn out to be a lot less than you were expecting But a state pension is guaranteed, until you die.


Most people these days will claim their pension when they are 67, so you'd be looking at making it last maybe 14 or 15 years on average. Personally I'd expect to find some kind of fixed income investment that would make the €36,000 grow a bit so it lasts longer than 10 years while still paying out €3,473 a year.

I'm not saying state pensions are bad in general, in fact I think the UK state pension is too low while the Spanish state pension has been way too high.

You've also highlighted the other point I originally made when I wrote



> On top of that the private pension system in Spain is poorly regulated and gives few tax breaks, so people don't really have an alternative.


Right now the Spanish private pension industry does not make private fund investment worthwhile either so the Spanish public is caught between a rock and a hard place. Many Spanish fund managers are incompetent (I've met a few through work) and that's before getting round to the corruption. However private investment is something that needs to be encouraged in general, the aim being a better balance between state and private pensions.


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## Lynn R (Feb 21, 2014)

Chopera said:


> Personally I'd expect to find some kind of fixed income investment that would make the €36,000 grow a bit so it lasts longer than 10 years while still paying out €3,473 a year.


Why not start looking? I think you'd be surprised if you think you could find one paying a 10% pa return.


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## Chopera (Apr 22, 2013)

Lynn R said:


> Can you find an investment which would pay you €8229 a year for the remainder of your life for a total investment of €36,000? If you can, would you care to share it with the rest of us? I think you'd be killed in the rush.


But you receive €4756 a year anyway. The €36,000 you pay in over 15 years only entitles you to an additional €3,473 a year on top of the basic €4756.


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## Lynn R (Feb 21, 2014)

Chopera said:


> But you receive €4756 a year anyway. The €36,000 you pay in over 15 years only entitles you to an additional €3,473 a year on top of the basic €4756.


So can you find a fixed income investment paying 10% per annum?


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## Chopera (Apr 22, 2013)

Lynn R said:


> Why not start looking? I think you'd be surprised if you think you could find one paying a 10% pa return.


€36,000 doesn't need to earn any interest to pay you €3,473 a year over 10 years. We're talking annuities here - both in the case of state and private pensions - the income is paid from the capital as well as the growth. You are left with nothing at the end of the term. You can't take it with you.


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## Lynn R (Feb 21, 2014)

Chopera said:


> €36,000 doesn't need to earn any interest to pay you €3,473 a year over 10 years. We're talking annuities here - both in the case of state and private pensions - the income is paid from the capital as well as the growth. You are left with nothing at the end of the term. You can't take it with you.


Have you seen what annuity rates are like? In the UK (and I don't suppose for one moment Spain is any better) someone aged 65 buying an annuity with 100K would get under 6% pa even if they opted for a level term. If they wanted it to increase by RPI it would be much less. The annuity rate is usually only guaranteed for 5 years (I know, my husband had to take one last year because he reached retirement age before the pension reforms were introduced).

A guaranteed return of 10% for life from the state pension is a far, far better deal.


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## Chopera (Apr 22, 2013)

Lynn R said:


> Have you seen what annuity rates are like? In the UK (and I don't suppose for one moment Spain is any better) someone aged 65 buying an annuity with 100K would get under 6% pa even if they opted for a level term. If they wanted it to increase by RPI it would be much less. The annuity rate is usually only guaranteed for 5 years (I know, my husband had to take one last year because he reached retirement age before the pension reforms were introduced).
> 
> A guaranteed return of 10% for life from the state pension is a far, far better deal.


Well it depends on how long you live doesn't it?

If you live until 77 then the state will have paid you an additional €34,730 from that €36,000 you paid in. It's only after then that you begin to be up on the deal, and that assumes the €36,000 would have earned no interest over those 10 years. If you could make it return 2.5% interest p.a., then that €36,000 will last you nearly to the age of 80.

Yes I know annuity rates are terrible, which is why people should never have been forced to buy them.


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## Lynn R (Feb 21, 2014)

Chopera said:


> Well it depends on how long you live doesn't it?
> 
> If you live until 77 then the state will have paid you an additional €34,730 from that €36,000 you paid in. It's only after then that you begin to be up on the deal, and that assumes the €36,000 would have earned no interest over those 10 years. If you could make it return 2.5% interest p.a., then that €36,000 will last you nearly to the age of 80.
> 
> Yes I know annuity rates are terrible, which is why people should never have been forced to buy them.


That would be 2.5% after tax you'd need - again, good luck with finding that at the moment on a no risk investment. Average life expectancy in Spain is already over 80 for both men and women.
http://www.thelocal.es/20150417/spaniards-have-highest-life-expectancy-in-europe

In your scenario, then, you'd have your basic non contributory pension of €5,000 pa (according to that Junta de Andalucia website that's the current amount, it has obviously gone up since 2012 which is when the Advoco article was written). Then you'd have an additional income of 2.5% per annum on €36,000 (if you could find it without risking your capital) which would give you a whole €900 extra per year. Still a long way short of the minimum state pension someone with 15 years' SS contributions would get.

Even if your investment of €2,000 per year earned interest (you obviously wouldn't have the €36,000 to invest until the end of the 15 years) it would still nowhere near match the return from the state pension.


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## Chopera (Apr 22, 2013)

Lynn R said:


> That would be 2.5% after tax you'd need - again, good luck with finding that at the moment on a no risk investment. Average life expectancy in Spain is already over 80 for both men and women.
> Spaniards have highest life expectancy in Europe - The Local
> 
> In your scenario, then, you'd have your basic non contributory pension of €5,000 pa (according to that Junta de Andalucia website that's the current amount, it has obviously gone up since 2012 which is when the Advoco article was written). Then you'd have an additional income of 2.5% per annum on €36,000 (if you could find it without risking your capital) which would give you a whole €900 extra per year. Still a long way short of the minimum state pension someone with 15 years' SS contributions would get.


The point is you do take money out of the capital. The state pension leaves you no capital when you die, so to make a meaningful comparison with a private investment you take money out of the capital as well.


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## Lynn R (Feb 21, 2014)

Chopera said:


> The point is you do take money out of the capital. The state pension leaves you no capital when you die, so to make a meaningful comparison with a private investment you take money out of the capital as well.


Personally I'd rather have more assured income to live on whilst I'm alive than be left with some capital when I die.

With your scenario, if you were taking money out of the capital then that 2.5% per annum would be getting smaller and smaller all the time, leaving you less to live on, whereas the state pension at least gets increased by whatever amount is agreed each year.

I've transferred my personal pension into a SIPP because I didn't want to have to buy an annuity with it. I could only do that because I already have a guaranteed pension income which is enough to live on, though, it would be very foolish to rely entirely on that to last me the rest of my life.


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## Chopera (Apr 22, 2013)

Lynn R said:


> Personally I'd rather have more assured income to live on whilst I'm alive than be left with some capital when I die.
> 
> With your scenario, if you were taking money out of the capital then that 2.5% per annum would be getting smaller and smaller all the time, leaving you less to live on, whereas the state pension at least gets increased by whatever amount is agreed each year.
> 
> I've transferred my personal pension into a SIPP because I didn't want to have to buy an annuity with it. I could only do that because I already have a guaranteed pension income which is enough to live on, though, it would be very foolish to rely entirely on that to last me the rest of my life.


Certainly you need some guaranteed retirement income, well ideally the more the better. My main complaint about Spain is they've skewed the system so there's a 15 year "dead zone" where you get no additional returns for the extra money you pay in. And that might increase to 20 years. Even if at some point in time those 15, 20 or whatever years of contributions cross a threshold whereby the retirement income makes it a decent investment compared to the alternatives, to me it's a blatant attempt by the government to exclude more people from receiving contributory pensions. As soon as people start paying in they should be entitled to some kind of return, no matter how small.


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