From 1 January 2023 contributory pensions rise by 8.5%, in line with average CPI, and non-contributory ones by 15%. What the increase means and how it may affect your tax return.
Royal Decree 1058/2022 of 27 December, published in the Official State Gazette (BOE) on 28 December, sets the revaluation of pensions for 2023: 8.5% for contributory pensions in the Social Security system and in the civil-service scheme (Clases Pasivas), with effect from 1 January. The percentage matches average CPI between December 2021 and November 2022, so, according to the government, pensioners keep their purchasing power. The decree also revalues civil-service (Clases Pasivas) pensions and other public social benefits, and came into force on the day of its publication.
What the increase means
The revaluation applies to the monthly amount the pension had on 31 December 2022. According to the government, the average retirement pension rises by about €1,500 a year and the average widow’s pension by about €930. Because the increase is tied to CPI, there will be no compensatory payment. The measure reaches 11.8 million pensioners and recipients, according to the same source.
Minimum pensions also rise by 8.5%. For 2023, the minimum retirement pension from age 65 stands at €10,963.40 a year with no dependent spouse and at €13,526.80 with a dependent spouse; for those under 65, at €10,256.40 and €12,682.60 respectively. The supplement that tops pensions up to the minimum has an income limit of €8,614 a year.
At the other end, pensions above €3,058.81 a month, €42,823.34 a year, are not revalued, with exceptions: it is the maximum limit for a public pension in 2023. Among the other measures the government highlighted, family doctors and primary-care paediatricians can combine their pension with full-time or part-time work; the measure will last three years.
Non-contributory pensions and the Minimum Living Income
Non-contributory retirement and disability pensions and the Minimum Living Income (IMV) receive an extraordinary increase of 15%. The non-contributory pension is set at €6,402.20 a year.
The effect on personal income tax
Public pensions are taxed under personal income tax (IRPF) as employment income. The increase raises taxable income and may mean that some pensioners who until now were not required to file a return now are. According to the Tax Agency, there is no obligation to file if gross employment income from a single payer does not exceed €22,000 a year.
With more than one payer the limit falls to €15,000, provided the second and subsequent payers add up to more than €1,500 a year. Pensioners with several pensions can ask the Tax Agency, using form 146, to set the withholding for each payer; in that case, and if the other requirements are met, the €22,000 limit is kept.
An example: a retirement pension of €1,500 gross a month, paid in 14 instalments, totals €21,000 a year. With the 8.5% increase it becomes €22,785, above the limit. It is an indicative calculation that takes no account of other income or personal circumstances, and the return for 2023 will be filed in 2024.
It is worth reviewing the withholding applied by the payer and whether other income, such as rent, interest or a second pension, changes the obligation to file. Consult your adviser on how it applies to your case.
A pension that rises eases the effect of inflation, but it can also change obligations to the tax authorities.
This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.
