How self-employed workers in Spain can get a better pension
The average 'autónomo' in Spain gets a pension which is below minimum wage and considerably less than contract workers. What are the best ways for self-employed workers to counteract this and better prepare for retirement?
Self-employed people in Spain (known as autónomos) are a group of around 3.3 million workers. They could be freelance coders or graphic designers, or small business owners like your local bar or bakery. Autónomos make up around 16 percent of the total number of social security contributors in the country.
Retired self-employed people, however, often receive far lower pensions than salaried workers. On average, a self-employed person in Spain receives a pension of around just €916 - an amount that is below the minimum wage in Spain.
READ ALSO: What we know so far about Spain's next minimum wage increase
Incredibly, the average pension former self-employed workers in Spain receive is around 40 percent lower than that of salaried workers, who get €1,533 (a whopping €617 more).
This largely boils down to the fact that the vast majority of self-employed people in Spain (over 80 percent, according to government statistics) contribute to their pension pot at the minimum contribution quota. For many self-employed people in Spain, life (and their income) can be rather unpredictable, with some months being better than others and others with no work at all.
Add to this the extremely high cost of simply being self-employed in Spain, and life can be tough for freelancers and self-employed in Spain. Not only do they pay income tax, but also the highest monthly social security fees in Europe, far higher than the UK's €14/month (minimum fee), the Netherland's €50 a year, and Germany's €140 for those earning more than €1,700 a month
For many self-employed in Spain, the dilemma is money now or money later; that is to say, stay afloat financially in the present or save for the future.
So, what can self-employed workers in Spain do to get a better pension?
PPES pensions
To try to close this gap between self-employed and salaried retirees, Spain's Ministry of Social Security recently introduced new pension plans (known as PPES) to which self-employed workers can sign up and contribute in the same way contracted workers can, but so far its impact has been limited.
One advantage of this new pension plan is that the self-employed gain flexibility in terms of when and how much they want to contribute to their pot, which can now be done periodically or in one-off contributions, and they have the option of adjusting their contributions according to their financial situation at any time.
Many Spanish banks have joined the PPES scheme and launched their own private pension schemes for the self-employed, but they have also failed to really take off yet.
Part of it is about awareness. Celia Ferrero, vice president of the National Federation of Self-Employed Workers' Associations (ATA), told El País that many self-employed workers just don't know about the different pension options available: "Now we have to do some educational work," she says. "We need to make the self-employed more aware of the need to have additional support in the future."
ATA is one of the only self-employed organisations actively marketing these pensions, through VidaCaixa (a PPES), but only around 1,000 people have signed up in the first year.
This is the also case for the Association of Financial Educators and Planners (AEPF), which, together with Cobas Asset Management, has a pension scheme to which just one hundred people have signed up so far, but to which they have already contributed - in the handful of months it has been in force - €2.2 million.
BBVA recently announced that it will also launch its own pension together with the Agrupación Nacional de Asociaciones Provinciales de Administraciones de Loterías (Anapal).
READ ALSO: Everything that changes for self-employed workers in Spain in 2024
Raise your contribution base
If you don't want to contribute to the PPES scheme, you could just increase your contribution base on your existing pension.
Though this will mean less money in the short-term, increasing your base better prepares you for retirement.
Self-employed can change their pension contribution base up to twice a year. Increasing it might make things more difficult in the short-term, upping your base will mean more of your money goes into your pension pot and will be saved for the future.
Sadly, the unpredictability and costliness of life as an autónomo in Spain means that self-employed people very rarely do this.
Invest
Some self-employed people choose to invest in financial products to compensate for that pension gap without having to raise their contribution base.
If you take a look at your contributions and how much it'll likely work out to, you may (as many do) realise that that is not going to be enough for the quality of life you want to live, but your current financial constraints could mean you are not able to increase your contribution quota.
Therefore, the option of saving and investing to supplement your pension is an alternative that requires less short-term economic sacrifice -- think ISAs, stocks, and bonds, and so on.
These sorts of investments pay off in the long-term based compound interest, for which the initial capital invested grows exponentially over the years as profits accumulate.
READ ALSO: Long hours and little pay: What it's like to be self-employed in Spain
Let's take an example, if you invested €10,000 in a financial product (say in an ISA) with an average annual interest of 7 percent, it would mean that in the first year you would get €10,700, which would then keep reinvesting the profits over time.
The way compound interest works means that, depending on the interest, after a while your capital doubles. This is known as the 72 rule or formula, by which dividing this number by the interest rate gives you the time it takes to double the investment.
So returning to our example, if you have invested in your 7 percent rate ISA, it will take a decade to double it. If the rate was 10 percent, it would take a little more than seven years, and if it was a lower rate, say 4 percent, 18 years.
Our journalists at The Local Spain are not financial or pension experts. Whenever making decisions about investment or pension plans, it is always recommended to seek the advice of a qualified expert who is familiar with the Spanish system.
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Self-employed people in Spain (known as autónomos) are a group of around 3.3 million workers. They could be freelance coders or graphic designers, or small business owners like your local bar or bakery. Autónomos make up around 16 percent of the total number of social security contributors in the country.
Retired self-employed people, however, often receive far lower pensions than salaried workers. On average, a self-employed person in Spain receives a pension of around just €916 - an amount that is below the minimum wage in Spain.
READ ALSO: What we know so far about Spain's next minimum wage increase
Incredibly, the average pension former self-employed workers in Spain receive is around 40 percent lower than that of salaried workers, who get €1,533 (a whopping €617 more).
This largely boils down to the fact that the vast majority of self-employed people in Spain (over 80 percent, according to government statistics) contribute to their pension pot at the minimum contribution quota. For many self-employed people in Spain, life (and their income) can be rather unpredictable, with some months being better than others and others with no work at all.
Add to this the extremely high cost of simply being self-employed in Spain, and life can be tough for freelancers and self-employed in Spain. Not only do they pay income tax, but also the highest monthly social security fees in Europe, far higher than the UK's €14/month (minimum fee), the Netherland's €50 a year, and Germany's €140 for those earning more than €1,700 a month
For many self-employed in Spain, the dilemma is money now or money later; that is to say, stay afloat financially in the present or save for the future.
So, what can self-employed workers in Spain do to get a better pension?
PPES pensions
To try to close this gap between self-employed and salaried retirees, Spain's Ministry of Social Security recently introduced new pension plans (known as PPES) to which self-employed workers can sign up and contribute in the same way contracted workers can, but so far its impact has been limited.
One advantage of this new pension plan is that the self-employed gain flexibility in terms of when and how much they want to contribute to their pot, which can now be done periodically or in one-off contributions, and they have the option of adjusting their contributions according to their financial situation at any time.
Many Spanish banks have joined the PPES scheme and launched their own private pension schemes for the self-employed, but they have also failed to really take off yet.
Part of it is about awareness. Celia Ferrero, vice president of the National Federation of Self-Employed Workers' Associations (ATA), told El País that many self-employed workers just don't know about the different pension options available: "Now we have to do some educational work," she says. "We need to make the self-employed more aware of the need to have additional support in the future."
ATA is one of the only self-employed organisations actively marketing these pensions, through VidaCaixa (a PPES), but only around 1,000 people have signed up in the first year.
This is the also case for the Association of Financial Educators and Planners (AEPF), which, together with Cobas Asset Management, has a pension scheme to which just one hundred people have signed up so far, but to which they have already contributed - in the handful of months it has been in force - €2.2 million.
BBVA recently announced that it will also launch its own pension together with the Agrupación Nacional de Asociaciones Provinciales de Administraciones de Loterías (Anapal).
READ ALSO: Everything that changes for self-employed workers in Spain in 2024
Raise your contribution base
If you don't want to contribute to the PPES scheme, you could just increase your contribution base on your existing pension.
Though this will mean less money in the short-term, increasing your base better prepares you for retirement.
Self-employed can change their pension contribution base up to twice a year. Increasing it might make things more difficult in the short-term, upping your base will mean more of your money goes into your pension pot and will be saved for the future.
Sadly, the unpredictability and costliness of life as an autónomo in Spain means that self-employed people very rarely do this.
Invest
Some self-employed people choose to invest in financial products to compensate for that pension gap without having to raise their contribution base.
If you take a look at your contributions and how much it'll likely work out to, you may (as many do) realise that that is not going to be enough for the quality of life you want to live, but your current financial constraints could mean you are not able to increase your contribution quota.
Therefore, the option of saving and investing to supplement your pension is an alternative that requires less short-term economic sacrifice -- think ISAs, stocks, and bonds, and so on.
These sorts of investments pay off in the long-term based compound interest, for which the initial capital invested grows exponentially over the years as profits accumulate.
READ ALSO: Long hours and little pay: What it's like to be self-employed in Spain
Let's take an example, if you invested €10,000 in a financial product (say in an ISA) with an average annual interest of 7 percent, it would mean that in the first year you would get €10,700, which would then keep reinvesting the profits over time.
The way compound interest works means that, depending on the interest, after a while your capital doubles. This is known as the 72 rule or formula, by which dividing this number by the interest rate gives you the time it takes to double the investment.
So returning to our example, if you have invested in your 7 percent rate ISA, it will take a decade to double it. If the rate was 10 percent, it would take a little more than seven years, and if it was a lower rate, say 4 percent, 18 years.
Our journalists at The Local Spain are not financial or pension experts. Whenever making decisions about investment or pension plans, it is always recommended to seek the advice of a qualified expert who is familiar with the Spanish system.
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