A supplement to the retirement pension.
Spain has a public retirement pension system based on pay-as-you-go criteria, explained very simply, "the contributions of people employed today pay the pensions of people retired today.".
However, the increase in life expectancy, the reduction in birth rates, the mechanization/robotization of economic activities, among other causes, make it difficult to sustain this pension system, since fewer and fewer active people are paying the pensions of more and more retired people.
Governments have addressed this imbalance in various ways, the most common being raising the retirement age and reducing maximum pensions. One approach recently proposed to rebalance the system is taxing robots.
For many years now, various public and private entities and organizations have been advising and encouraging working people to take out pension plans or long-term savings plans. The idea is that in the future they can supplement their state pensions, which tend to decrease.
But the private supplement is viable if you start saving early, because it takes a long time to accumulate enough capital to generate a sufficient pension.
To solve the problem of people who have either not been able or have not wanted to save during their working life to supplement their pension in retirement, some Financial Institutions have launched products on the market that are generically known as Reverse Mortgages.
Reverse mortgages and pension mortgages aren't new products, but to date they've had very limited success, and now they're being relaunched with renewed vigor. But what exactly is a reverse mortgage?
The Bank of Spain's Guide on Reverse Mortgages defines it as a credit or loan, guaranteed by a mortgage, which normally falls on the main residence, granted, in one go or through periodic payments, to a person who must be over 65 years of age.
The system works simply this way: if I'm 65 or older and own the home I live in, I can use it to supplement my pension without losing ownership or the right to use it. The financial institution will appraise the property and grant me a loan, secured by the home, which pays me a monthly, quarterly, or lump sum amount that I can use as I see fit.
And the money I have received, plus its interest, I will never return; upon my death, my heirs will decide whether to renounce the house (handing it over to the Financial Institution) or keep it and pay off the accumulated debt.
From a tax perspective, the amounts received are not taxed, since they are Debt, not Income.
It's an interesting option that liquidates the most common asset for families in Spain—their home—without losing it during their lifetime, by taking on debt but without the obligation to repay it. An alternative for difficult economic situations.
If you require further information or have any questions, please contact us via email at ambit@ambitassessor.com or at our offices.
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A graduate in Economics from the University of Barcelona, he is also a Certified Actuary, Real Estate Agent, and Insurance Broker.
He furthered his training with courses in taxation, business valuation, and credit management offered by the College of Economists of Catalonia and the Center for Financial Studies (CEF).
In 2000, he became the managing partner of the firm, and since 2011, he has also been responsible for the Finance Department.
For five years, while already a member of the management team at Àmbit Assessor, he also held the positions of Deputy General Manager and Finance Director at Alco Grupo Empresarial.
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