Royal Decree 16/2001 of 27 December is a piece of legislation establishing a new system of gradual and flexible retirement. These changes stem from the Agreement for the Improvement and Development of the Social Protection System, signed on 9 April by the Government, the trade union CC.OO, and the employers' organisations CEOE and CEPYME, and which came into force in Spain on 1 January 2002.
Written by Josep Conesa
Employment and insolvency lawyer
The most significant change is that drawing a retirement pension whilst working part-time is now permitted. During this period, the pension amount will be reduced in inverse proportion to the reduction applied to the pensioner's working hours relative to those of a comparable full-time employee.
The legislation also introduces incentives to encourage this extension of working life, for both employers and employees who wish to take advantage of this new system.
AVAILABLE RETIREMENT OPTIONS:
1) STANDARD RETIREMENT:
This applies to those who retire at 65 and cease all employment activity. The amount of the retirement pension based on years of contributions is 50% of the regulatory base for the first 15 years of contributions, with an additional 3% for each year between the sixteenth and the twenty-fifth, and 2% from the twenty-sixth year onwards, up to a maximum of 100%, reached after 35 years of contributions.
2) EARLY RETIREMENT FOR THOSE WHO HELD THE STATUS OF LABOUR MUTUAL FUND MEMBER ON 1 JANUARY 1967:
From the age of 60, those who held the status of labour mutual fund member before 1 January 1967 may take early retirement. In addition to this requirement, they must demonstrate at least 15 years of Social Security contributions throughout their working life, and be in active or equivalent registered status at the time of retirement.
The early retirement reduction coefficient is 8% for each year remaining until the age of 65, unless the early retirement arises from the termination of the employment contract for reasons not attributable to the employee's own will, in which case the reduction coefficient is:
· between 31 and 34 accredited years of contributions: 7.5%
· between 35 and 37 accredited years of contributions: 7%
· between 38 and 39 accredited years of contributions: 6.5%
· with 40 or more accredited years of contributions: 6%
3) EARLY RETIREMENT FOR THOSE NOT REGISTERED WITH A MUTUAL SOCIETY (MUTUALIDAD) AS OF 1 JANUARY 1967:
A significant new development is the possibility of taking early retirement from the age of 61, even without contribution records prior to 1967. In this case, the following requirements apply:
· Being at least 61 years of age
· Demonstrating a minimum effective contribution period of 30 years, not including for these purposes the proportional part of extra payments
· Being registered as a jobseeker for at least the 6 months prior to claiming retirement, and that the cessation of work, as a result of the termination of the employment contract, was not brought about by a cause attributable to the employee's own free will.
The reduction coefficient for each year of early retirement is:
· 8% with 30 years of contributions.
· 7.5% between 31 and 34 years.
· 7% between 35 and 37 years.
· 6.5% between 38 and 39 years.
· 6% with 40 or more years of contributions.
Measures to discourage early retirement:
With the aim of continuing to promote employment and discourage retirement at an early age, the Agreement provided for a programme of contribution bonuses and reductions for older workers who remain in employment and are at risk of being pushed out of the labour market prematurely.
In implementation of the Agreement, the Decree establishes a 50% reduction in Social Security contributions for common contingencies (excluding temporary disability (IT)) for workers aged 60 or over who hold a permanent contract and have 5 or more years' service with the company.
This 50% reduction, applicable from 2002, will increase by 10 percentage points each year until it reaches a maximum of 100%.
4) GRADUAL AND FLEXIBLE RETIREMENT
The Decree amends the rules on retirement to allow workers who so wish to continue working beyond retirement age. They may do so on the same basis as before, or at a reduced pace, enabling them to combine their pension with employment.
a) Retirement of workers aged over 65:
To encourage longer participation in working life, the legislation introduces incentives for both workers and employers to promote the continued employment of workers aged over 65. These incentives apply to both employed workers and self-employed workers (autónomos) who can demonstrate 35 or more years of actual contributions.
Their pension amount is increased by 2% for each full year they continue working beyond the age of 65.
Where a person aged 65 wishes to continue working but has not yet completed 35 years of contributions, this additional percentage will be applied once that contribution period has been reached.
Social Security contributions for common contingencies are waived — for both the company and the employee, including contributions to the Wage Guarantee Fund (FOGASA) and vocational training — except those relating to temporary disability (IT), and only once the worker has completed 35 years of contributions.
b) Partial retirement for workers aged 60 or over.
Where a worker chooses to combine a pension with part-time work, the pension will be reduced in inverse proportion to the reduction in working hours.
For example, if a employee reduces their working hours by 40% (working 60% of their normal hours), the pension would be reduced by 60%. That employee would therefore receive 40% of their pension plus the salary corresponding to 60% of their working hours.
working hours may be reduced by between 25% and 85%, provided the employee meets all the conditions for retirement except age. A partial retirement pension is compatible with a salary paid by the company, and Social Security contribution rebates are available in certain cases.
Additional measures:
1.- The Royal Decree also provides for other measures, including the possibility for those who continue working beyond the age of 65 to access permanent disability pensions even where the employee is aged 65 or over and meets the conditions for a retirement pension, provided the underlying cause of the disability stems from a work-related accident or an occupational illness.
In other words, if an employee wishes to continue working past retirement age and, as a result of a work-related accident or occupational illness, becomes entitled to a permanent disability pension, they may choose either to receive that pension or to receive their retirement pension.
2.- The Decree also provides that the subsidy for jobseekers aged 52 and over shall not be terminated solely on the grounds that the recipient reaches the age at which they may become entitled to a contributory retirement pension.
3.- The new legislation also includes measures to discourage abusive early retirement arrangements in cases of workforce restructuring procedures involving companies that are not subject to insolvency or administration proceedings, requiring such companies to fund a special Social Security agreement in certain restructuring cases.
