Pension market alert: Spain has reduced the maximum tax-free employee contribution to pension 

The Spanish Government has announced reductions in the maximum employee contributions possible to tax-approved pension arrangements from 2021 as part of the General State Budget 2021. These changes will now mean that company sponsored pension plans offer significant advantages compared with individual arrangements.

The key highlights are:

• The maximum individual/employee contribution that can be made to a tax-approved pension arrangement (qualified pension plans, including employment and individual pension plans) has been reduced from €8,000 p.a. to €2,000 p.a.
  
  
• Company contributions may be paid in addition up to an amount of €8,000 p.a., offering a total possible annual contribution of €10,000 p.a. to company sponsored plans.
  
  
• Employees can make contributions via salary sacrifice to qualified and non-qualified pension plans in order to contribute over the €2,000 limit.
  
  
• Non-qualified pension plans can also offer the opportunity for employees to sacrifice up to €100,000 p.a. to be contributed to the plan from their gross pay without incurring a benefit-in-kind tax charge. The Company’s tax deduction in respect of the contributions made is deferred until the benefits are paid, or when the benefits are transferred upon an employee leaving service.