How to reconcile retirement with economic activity

In the first part of this article we wrote about How to combine pension with employment and now we will explain how to reconcile it with self-employment.

Let us remember that we focused on contributory pensions, for people who reach retirement age while linked to a Company in which they serve as managers or directors.

We will basically face two possibilities: maintaining ownership of the business and the so-called “active age”.

1. Retirement and active age.

This option allows you to combine receiving contributory retirement benefits with any type of work, whether self-employed or employed, full-time or part-time, provided that the following requirements are met:

1. Access to the pension must have occurred after reaching the applicable retirement age, but retirements benefiting from bonuses or early retirement are not admissible. Those who retire at age 65 after accruing at least 38 years and 6 months of contributions, or those who retire at age 67 otherwise, will meet this requirement.
2. The percentage applied to the respective regulatory base for the purpose of determining the pension amount must reach 100% (mandatory). In other words, the maximum pension that can be accessed must be reached.

The pension amount during the period of active retirement will be equivalent to 50% of the amount resulting from the initial calculation, after applying, if applicable, the maximum public pension limit (which for 2020 is set at €2,683.34), or the amount being received at the time the pension is combined with work, excluding, in all cases, the minimum supplement, regardless of the working hours or activity performed by the pensioner. This monthly payment amounts to a maximum of €37,566.76 per year.

Companies that allow employees to combine work with receiving a retirement pension, as stipulated in this section, must not have made any improper dismissals in the six months prior to such compatibility. This limitation will only affect the filling of positions within the same professional group as those affected by the dismissal.

Once the pension and work compatibility arrangement has begun, the Company must maintain, for the duration of the pensioner’s employment contract, the same level of employment that existed before the pension arrangement began. For this purpose, the daily average of employees registered with the Company during the ninety days prior to the start of the pension compatibility arrangement will be used as a reference. This average is calculated by dividing by ninety the sum of the number of employees registered with the Company during the ninety days immediately preceding the start of the pension compatibility arrangement.

The obligations to maintain employment will not be have caused breached when the employment contract is terminated for objective reasons or by disciplinary dismissal when either is declared or recognized as appropriate, nor will terminations caused by resignation, death, retirement or total, absolute or severe permanent disability of the workers or by the expiration of the agreed time or completion of the work or service that is the object of the contract.

2. Maintaining ownership of the business. Management.

The final formula for combining retirement pension benefits applies to business Directors and Managers. In these cases, retirement is compatible with continuing to perform the duties inherent to business ownership, but following the instructions outlined below:

When the business or Company is a capitalist commercial Company and the retiree is a member of its social administration body (Administrator or Director), he may combine the receipt of the retirement pension with the exercise of the powers inherent to said legal ownership of the business, but without intervening directly in the ordinary management and administration of the Company, which must be delegated, either internally, to another member of the social administration body (Executive Director), or externally to a senior manager (Manager or General Director) with general powers to administer, direct and contract on everything that constitutes or forms part of the normal or ordinary course or business of the Company.

Thus, the only thing a retired non-executive Director or Director can do in the exercise of their position to ensure it is compatible with receiving their retirement pension is to guide and oversee the actions of the person in charge of the ordinary management and administration of the Company, in addition to those other legally non-delegable powers (such as calling general meetings, informing partners or shareholders, preparing and signing the annual accounts and drafting the management report or depositing the accounts in the Commercial Registry).

Whether the position of Director or board member is unpaid or paid is not relevant in itself for the purposes of making it compatible with receiving a retirement pension; rather, what is relevant is that the retired director or board member does not carry out any activity that entails mandatory registration in any of the Social Security schemes, since it is precisely this registration that is incompatible with receiving a retirement pension.

Therefore, if the retired Director or board member does not have effective control of the Company, in principle, their mandatory registration with Social Security should be ruled out, even if the position is paid, as long as they are a non-executive Director or board Member, that is, they do not perform management and executive functions of the Company.

However, the remuneration system for the position of Director or Board Member may not consist of a fixed and periodic payment (monthly, quarterly, semi-annually, annually, etc.). To be compatible with receiving a retirement pension, it may only consist of a fixed amount per attendance at each meeting of the shareholders’ meeting or the Board of Directors, that is, as attendance fees. This is because a fixed remuneration, not linked to meeting attendance, implies that the director performs some activity beyond those inherent to the position and which cannot be delegated, which would require mandatory registration with the corresponding Social Security system, thus rendering it incompatible with the retirement pension.

It is essential here to analyze the situation of each of the Directors of the Company in question, to know in detail their contracts and positions, so that, if their contract is not that of administrator or advisor, then this section will not apply.

In any case, it will always be possible to combine retirement with this position, fulfilling the remuneration and category requirements indicated here, for which the Company statutes must be analyzed to review whether they should be modified in order to comply with this type of remuneration for the Directors.