Requirements and Options for Retirement

Keeping an eye on the future is the best way to shape a stage of life where peace of mind and security are paramount.

When planning for retirement, many questions arise. In this post, Conesa Legal will address some of the most common ones — including the retirement age, how many years of contributions are required to access a retirement pension, and how to retire early, among other issues.

Get in touch if you have any questions:

WHEN CAN I RETIRE?

As a general rule, the following persons are entitled to retire:

1. "Persons covered by the General Social Security Scheme shall be entitled to a contributory retirement pension where, in addition to the specific requirements for retirement (qualifying event, age, and contributions), they meet the general requirement of being registered and active in this Scheme or in a situation treated as equivalent to active status:
   a) Having reached the age of 67, or 65 where at least 38 years and 6 months of contributions are demonstrated, without taking into account the proportional share corresponding to extra payments.
   b) Having completed a minimum contribution period of 15 years, at least 2 of which must fall within the 15 years immediately preceding the date on which entitlement arises. For the purposes of calculating years of contributions, the proportional share corresponding to extra payments shall not be taken into account."

HOW MUCH WILL I RECEIVE WHEN I RETIRE?

To illustrate with a concrete example, if an employee intends to retire in 2020, the regulatory base will be calculated based on the last 23 years of contributions, which multiplied by 12 months gives a total of 276 months. To continue with the calculation, the regulatory base must be divided by a divisor, which is the result of multiplying the number of years contributed by the total number of pay periods (14). In this case, 23 years multiplied by 14 gives 322. This divisor increases by 14 each year.

Accordingly, from 2022 onwards, the regulatory base will be calculated by dividing the employee's contribution bases over the 300 months prior to the month of retirement by 350.

The first step, then, is to gather your Social Security contribution bases for the years immediately preceding retirement.

Once you have those contribution bases, you add them together and divide by 322. The result is what is known as the regulatory base, which does not correspond directly to your retirement pension — certain adjustments must still be applied, based on the total number of years you have contributed throughout your working life.

With regard to those adjustments, it is worth considering the situation of workers who wish to retire before reaching the standard retirement age. This gives rise to the following scenarios:

What is early retirement and what is pre-retirement?

The key difference between the two is that pre-retirement is agreed between the company and the employee — once the agreement is signed, the worker becomes unemployed. Early retirement, by contrast, is regulated by Social Security, and the employee becomes a pension recipient.

This post focuses on early retirement. As noted above, pre-retirement is a matter of agreement between the company and the employee, and the terms can vary widely depending on what is negotiated.

EARLY RETIREMENT

Early retirement can be applied for before reaching the minimum retirement age — a threshold that increases progressively year on year. It should be noted that the current rules make access to early retirement more difficult, with the aim of encouraging workers to remain in the labour market for longer.

There are two types of early retirement: voluntary and involuntary.

Voluntary early retirement:

Voluntary early retirement occurs when the employee decides to end their working life before the standard retirement age. A minimum number of years of contributions to Social Security is required, at least two of which must fall within the last 15 years. In addition, the worker must be at least two years below the standard retirement age and have a minimum contribution period of 35 years. 

In both cases, Social Security applies reduction coefficients based on the total contribution period and how far in advance retirement is taken. These vary depending on the type of early retirement in question. For voluntary early retirement, the reduction coefficients are as follows:

• A reduction coefficient of 2% per quarter where the contribution period is less than 38 years and 6 months
• A reduction coefficient of 1.875% per quarter where the contribution period is between 38 years and 6 months and 41 years and 6 months
• A reduction coefficient of 1.750% per quarter where the contribution period is between 41 years and 6 months and 44 years and 6 months
• A reduction coefficient of 1.625% per quarter where the contribution period exceeds 44 years and 6 months

Involuntary early retirement:

Involuntary early retirement occurs for reasons beyond the employee's control, as a result of a corporate restructuring process: collective dismissal or objective dismissal. The dismissal must have taken place within the 4 years prior to the standard retirement age, a minimum contribution period of 33 years is required, and the employee must have registered as a jobseeker at the employment office for a minimum of 6 months prior to the date of the retirement application.

For involuntary early retirement, the reduction coefficients are as follows:

• 1.875% per quarter where the contribution period is less than 38 years and 6 months.
• 1.75% per quarter where the contribution period is equal to or greater than 38 years and 6 months but less than 41 years and 6 months.
• 1.625% per quarter where the contribution period is equal to or greater than 41 years and 6 months but less than 44 years and 6 months.
• And a coefficient of 1.5% per quarter where a contribution period of 44 years and 6 months or more is evidenced.

We process retirement applications — both in person and online — with the relevant Public Authorities. Please do not hesitate to contact Conesa Legal if you need assistance submitting your application:

Am I entitled to an EU Retirement Pension?      

The award of retirement pensions to individuals who have worked in two or more European Union Member States is governed by EU Regulations (EC) 883/04 and 987/09 on Social Security.

These EU Regulations apply to the coordination of the Social Security systems of EU Member States, states party to the European Economic Area, and Switzerland.

The EU coordination rules provide for the "aggregation of periods", which means that insurance or employment periods accrued under the legislation of one Member State are taken into account when determining entitlement to a benefit under the legislation of another Member State.

This principle ensures that when assessing whether an employee meets the conditions required to be entitled to a pension, if the period during which they have been insured in one Member State is not long enough to acquire pension entitlement in that country, any insurance periods completed in other countries will be taken into account.

If you have worked in several EU countries, you may have accrued pension entitlement in each of them.

Persons falling within the scope of the Regulation must apply for the pension or pensions to which they may be entitled in respect of the time worked in each of the States covered by the Regulation, before the competent institution of the State where they reside at the time of initiating the application for the pension or pensions, unless they have never worked there.

In this case, the application must be submitted to the Institution of the Member State where you last worked.

The Institution with which you have lodged your application is responsible for forwarding the information you have provided to the competent Institutions in all other Member States where you have worked and made contributions, so that they may assess the pension entitlements due to you.

INFORMATION WE NEED FOR RETIREMENT ASSESSMENTS:

• Up-to-date employment history report.
• Up-to-date contribution bases report.
• Copy of your national identity document (DNI).
• Copy of your employment contract (so we can identify the applicable collective bargaining agreement).
• Confirmation of whether you have made contributions abroad, and in which country.
• Home address.
• Mobile phone number and email address.
• Family status: married, single, divorced, etc.
• Spouse's details: first name, surname(s), national identity number, date of birth.
• Children's details: first name, surname(s), national identity number, date of birth.
• Details of any cohabitants: first name, surname(s), national identity number, date of birth.
• Intended retirement start date.
• Income received from sources other than employment.