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1. Combining Retirement and Active Employment
In this article, we will focus on Contributory Retirement Pensions, as we are referring to individuals who reach retirement age while still working for a Company under an employment contract. In other words, Social Security contributions continue to be paid until they retire from employment. We are therefore dealing with the Contributory Retirement Pension scheme, as regulated in sections 204 and following of the Spanish General Social Security Act (Ley General de la Seguridad Social, hereinafter, the LGSS).
In this context, the financial benefit arising from retirement under the Contributory scheme consists of a Lifetime Pension granted to a person who, upon reaching the legally established retirement age, ceases the salaried work he or she had been carrying out.
1.1. Requirements to Qualify for a Contributory Retirement Pension
The requirements for receiving a Retirement Pension are as follows:
a) The individual must be affiliated with and registered under the General Social Security Scheme when the relevant contingency arises; in other words, he or she must be employed by the Company upon reaching retirement age.
b) The individual must have reached 67 years of age, or 65 years of age if he or she can prove 38 years and 6 months of contributions.[1]
c) The individual must have 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.
That said, a Retirement Pension may also be granted even if the person is not registered at the time the entitlement arises, provided that the age and contribution requirements are met.
1.2. Early Retirement for Reasons Not Attributable to the Employee
It is not always necessary to wait until the exact age of 67 in order to retire. In such cases, we are dealing with Early Retirement. Access to Early Retirement may be possible provided the following requirements are met:
a) The individual must have reached an age that is no more than four years below the applicable retirement age referred to in section 1.1 above. In other words, under normal circumstances, early retirement may be possible from the age of 63, subject to the specific circumstances of each case.
b) The individual must have been registered with the employment office as a job seeker for at least six months immediately prior to the date of the retirement application.
c) The individual must prove a minimum effective contribution period of 33 years.
d) The termination of employment must have occurred as a result of a Business Restructuring Situation that makes continuation of the employment relationship impossible. For these purposes, the following grounds for termination may give rise to entitlement to this type of early retirement:
1. Collective dismissal for economic, technical, organisational or production-related reasons, pursuant to section 51 of the revised text of the Workers’ Statute (Estatuto de los Trabajadores, hereinafter, the ET).
2. Objective dismissal for economic, technical, organisational or production-related reasons, pursuant to section 52.c of the Workers’ Statute.
3. Termination of the employment contract by court order, pursuant to section 64 of Act 22/2003 of 9 July, Insolvency Act.
4. Death, retirement or incapacity of the individual employer, without prejudice to the provisions of section 44 ET, or the extinction of the Legal personality of the contracting party.
5. Termination of the employment contract on grounds of force majeure, as confirmed by the Labour Authority in accordance with section 51.7 ET.
In the cases referred to in grounds 1 and 2 above, in order to access this form of Early Retirement, the employee must prove that he or she has received the compensation arising from the termination of the employment contract, or that he or she has filed a Court claim seeking such compensation or challenging the termination decision.
Receipt of such compensation must be evidenced by the relevant bank transfer record or equivalent supporting documentation.
In cases of early retirement, the Pension will be reduced by applying the relevant reduction coefficients for each quarter, or part thereof, remaining until the employee reaches the applicable Legal retirement age referred to in section 1.1 above.
At the time the original article was written, the WHO-declared pandemic was treated as force majeure. Accordingly, the employment contract would have had to be terminated on that basis, meaning that the Company should have initiated an ERTE or ERE procedure including the employee concerned.
Early retirement entails a reduction in the pension to be received.
1.3. Early Retirement at the Employee’s Own Request
In this case, the requirements are as follows:
a) The individual must have reached an age that is no more than two years below the applicable retirement age referred to in section 1.1 above.
b) The individual must prove a minimum effective contribution period of 35 years.
c) Once the general and specific requirements for this type of Early Retirement have been met, the amount of the Pension to be received must be higher than the minimum pension that would correspond to the individual, depending on his or her family circumstances, upon reaching 65 years of age. Otherwise, this form of early retirement cannot be accessed.
In such cases, the Pension will also be reduced by applying the relevant coefficients, as in section 1.2 above, depending on the proven contribution period.
Early Retirement entails a Reduction in the Pension to be received.
1.4. Incompatibility and Compatibility with Work
As a general rule, receipt of a Retirement Pension is incompatible with work performed by the pensioner. However, there are certain exceptions, which are the ones examined below.
The Law provides that individuals who retire may combine receipt of the pension with part-time salaried work, under the terms established by regulation. During that period, the amount of the Pension will be reduced in inverse proportion to the reduction in the Pensioner’s working hours compared with those of a full-time employee.
Likewise, receipt of the Retirement Pension is compatible with self-employment where total annual income does not exceed the annual minimum interprofessional wage (salario mínimo interprofesional, hereinafter, the annual SMI). Persons carrying out such economic activities are not required to pay Social Security contributions in respect of those activities.
The Main Types of Retirement Compatible with Work May therefore be Summarised as follows:
1.4.1. Partial Retirement
This special type of Retirement makes it possible to acquire Pensioner status while combining it with part-time salaried employment, subject to the following conditions:
- A minimum working time of 25% and a maximum of 50% of ordinary full-time working hours.
- A proportional reduction in the amount of the pension based on the above percentage.
For example, an employee who, upon retiring, reduces his or her working hours by 60%, so that he or she continues working 40% of ordinary working hours and begins receiving 60% of the Retirement Pension.
1.4.2. Flexible Retirement
This refers to the possibility of combining a Retirement Pension, once granted, with part-time work, subject to the following conditions:
- The retired individual must work a maximum of 75% and a minimum of 50% of ordinary full-time working hours.
- The reduction in the pension amount will be in inverse proportion to the reduced working hours.
For example, a person who is already retired and later accepts a job under a part-time employment contract for 75% of ordinary full-time working hours, so that he or she begins working 75% of ordinary working hours and continues receiving 25% of the Retirement Pension.
1.4.3. Self-Employed Persons with Income Not Exceeding the SMI
Receipt of the Retirement Pension is compatible with self-employed work where total annual income does not exceed, on an annual basis, the minimum interprofessional wage (SMI). For 2020, this amount was set at EUR 13,300. As explained in section 1.4 above, no Social Security contributions are payable in such cases.
