This post was originally an email that I sent to Morten, an expat living in Madrid.
He is interested in Financial Independence, in particular about how to create a pension scheme and invest in order to build a nest egg. He has been in a FIWE meetup, where he met Mr. and Mrs. W.
Therefore, this in an introduction to Financial Independence in Spain, written in English. I hope it is useful to somebody.
By the way, let me highlight from the very beginning that I am not a financial advisor. This is just my opinion. Do not take any decision without thinking carefuly about it, and perhaps asking a profesional.
These are some ideas regarding pensions and money investing in Spain. I hope they are the entry point, afterwards you could search for more detailed information.
Regarding financial services, a very good source of information is the CNMV, the “Comision Nacional del Mercado de Valores” (National Commision for Stock Exchanges). It is the Spanish institution that regulates investments. It is the official reference for these topics. If you find something suspicious (for example a fishy company providing financial services), please have a look there. In the past I found an English expat living in Spain asking about a British company in a forum, and the company was indicated in the CNMV as fined and forbidden. It was considered a scam! The CNMV is a reliable source of information, and at least part of the web is translated into English.
In the “Investor factsheets and guides” you will find many PDFs with information. Some in English.
Unfortunately most information about Spanish finances is in Spanish language. I am not aware of any expat writting in English about the Spanish system. I recommend you to follow Spanish blogs/forums and use Google Translate. The first point to start is for example FIREhub.
Everybody has a bad opinion about banks, I guess it is the same in every country. I would recommend you to ask them, to get information, but do not agree on anything unless you are completely sure. In fact, in my opinion, retail banks provide a very low quality service.
Typical online banks are for example ING Direct for everyday life and DeGiro for investments. They are ok for me, I do not profit from this recommendation. This is what I have, but please I cannot be sure that they are exactly what you need. They provide a lot of information online and therefore the conditions you get are clear and transparent.
In Spain there are two official ways of saving for retirement:
- The public system. 1/3 of your gross salary, paid directly by the company. It is the Seguridad Social (Social Security). This is compulsory, you cannot escape from it.
- The private system. Pension funds that will allow you to get some tax advantage, and (in principle) can only be withdrawn at 67 years old. Both the tax advantage and the retirement age change from time to time. In average, private pension plans are extremely bad, much worse than doing nothing (I mean, keeping the money in the bank account is better). Please have a look to this post, that describes a famous paper in Spain (sorry for the self-reference :-).
I would recommend:
- I have read that there are now private plans that are (in principle) low cost and managers give feedback to investors (for example annual presentations). I do not own any of them, but appraisals are positive. Cobas, AxValor, etc. None of them belong to big banks, but they are very well know online, there is plenty of information. Ummm… they are very much oriented to “value investing”. The forum “MasDividendos”=”More Dividends” is a good source of information.
- Do it yourself. I think it is the best choice. This is what I do in Germany, my way to Financial Independence. I buy index funds, passive investing, as ETFs. It is simple and if I relocate to another country, there is no problem. They should have the “UCITS” indicating that the fund is tax transparent everywhere in the European Union. You could buy Vanguard ETFs (they are well-known in the passive investing community) in Xetra (Frankfurt) or Euronext (Amsterdam) using ING or DeGiro (choose them from JustETF, for example). This is what I do (as I said, in Germany), I hope in the future I will be back to Spain with my nest egg. It is very easy to build a Boglehead or Permanent Portfolio this way.
- If you prefer standard mutual funds (“fondos de inversión”) instead of ETFs (perhaps funds are better for small investments, and due to tax privileges, see below), then typical passive investors in Spain use BNP Paribas to buy Vanguard and Amundi.
By the way, there are at least two unique characteristics of investing in mutual funds in Spain (standard funds, not ETFs):
- Funds that accumulate dividends (“fondos de acumulación“) delay the payment of taxes compared with funds that distribute dividends (“fondos de distribución“). You get a marginal advantage with accumulating funds, and that is why everybody prefers them in Spain. You could accumulate these dividends without paying taxes in Spain, move to a different country, sell the fund, and pay for the capital gains in that country. Therefore you should ask yourself: Do you pay more or less taxes in the country where you could move with respect to Spain (which is between 19% and 23%).
- You can transfer your investment from a fund to another fund withoug paying taxes. This is really unique. You could do rebalancing, for example transferring part of an investment in a stock fund that is overvalued, to a bond fund that is undervalued. This is very common and there is plenty of information online.
Another important web with a lot of information about retail finances in Spain (brokers, pension funds, stocks, funds, etc.) is Rankia.
And this forum is great: Caza Dividendos (Hunt Dividends).
This post about passive investing is quite famous in the passive community in Spain. It contains all the information that you could need about it: Gestión pasiva Bogleheads y otros temas relacionados con indexación.
And by the way, every time that I want to have a quick look to the tax system of a country, I have a look to its Deloite PDF. Example: “Deloite Tax Spain“.
By the way, I am not a profesional adviser, please crosscheck what I say. And although I read Spanish blogs frequently, I do not own any private pension plan in Spain.
I forgot to tell you: if you own properties (house, investments) outside Spain, you have to declare them. Again, plenty of info online (in Spanish): modelo 720.
Finally, I hope the Pan European Pension Plan will be applicable soon: the posibility to work in a country, save for retirement, and if the person moves to a different country, the pension plan is still valid. No need to start a new pension scheme per country. Bye bye to the bank monopolies regarding pension funds in each country.
If you have any other idea, please write it down. Perhaps we could make this a useful source of information for expats in Spain.