Pre-retirement under debate

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A report published in summer 2000 finds that large Spanish companies are increasingly using the mechanism of "pre-retirement" for older workers, even when they are not in a situation of crisis. Such schemes affect workers over the age of 50 and are seen as a way to reduce workforces that is fairly uncontroversial and profitable in the medium term. Workers' committees in the companies concerned try to make pre-retirement as advantageous as possible for the workers and to obtain job creation in exchange. The government sees this mechanism as having an unacceptable cost for society and for the social security system, and in late 2000 is considering making it a less attractive option.

A recent report by the Economic and Social Council (Consejo Económico y Social, CES), (Working life and pre-retirement [Vida laboral y prejubilaciones], CES, June 2000), analyses in depth the problem that pre-retirement (prejubilaciones) is raising in Spain. Early retirement and pre-retirement should be distinguished. Early retirement is for people who have paid pension contributions for 15 years and have fulfilled certain other requirements, and who take retirement between the age of 60 and 65. Pre-retirement on the other hand affects people who leave the labour market before the legal retirement age but have paid the required number of contributions. In these cases, they receive contributory unemployment benefit like other workers, but from the age of 52 they are also entitled to receive non-contributory benefit until they reach the age of retirement or early retirement.

The main conclusion of the report is that the problem does not lie in those workers who have taken pre-retirement in the context of industrial and company restructuring. On the contrary, the problems lie in workers taking pre-retirement as part of "redundancy procedures" (expedientes de regulación de empleo) in the past few years in certain companies (ES9906136N) for reasons such as: the obsolescence of their knowledge due to the evolution of technologies; difficulties of adapting to new technology; and the presumption that they will be less productive. These redundancy procedures must be negotiated with workers' representatives and approved by the labour authorities. Their cost in terms of income for those going into pre-retirement is met by compensation, employers' contributions, unemployment benefits, and in some cases public aid, combined with early retirement when possible. Pre-retirement is seen a way of reducing workforces that is fairly uncontroversial and also profitable in the medium term.

Overall, both the number of traditional redundancy procedures and the number of workers affected have fallen. However, the report finds that these procedures are being used by companies that are not in crisis but are expanding and showing high profits. Furthermore, they are increasingly being used at the time of mergers, major expansions, concentrations and changes in business orientation. They could be described as "new economy" redundancy procedures. The consequences of this type of procedure are found to be not only an unjustifiable increase in costs for the social security system, but also an extraordinary waste of human resources that society cannot afford.

The position of the social partners

Employers' organisations have not made explicit declarations on the issue of pre-retirement because they consider that it falls within individual companies' workforce management strategies and is therefore not their concern.

However, the reasons and arguments used by many companies in this area are known. According to these companies – often large ones with a good financial situation – the aim is to adapt the workforce to the needs of the present, replacing older, less-qualified workers with younger, better-qualified ones. To achieve this, they use all the available legal mechanisms, and one of these is pre-retirement. The sectors that most use this mechanism are those in the "new economy", such as energy and telecommunications, but it is also used by Spanish banks - which, compared with their counterparts elsewhere in the EU, have over-large workforces - and by motor manufacturing companies.

In practice, companies are implementing strategies that go beyond the traditional remit of redundancy procedures. A recent agreement at the Endesa energy group provides, in addition to pre-retirement, for a voluntary system of retirement for workers with at least 10 years' service in the company. The workers concerned will receive compensation of 45 days' pay per year worked, plus one year's pay if they are under 40 and two years' pay if they are over 40. This offer may be too tempting to resist for those involved, especially if they hope to find work elsewhere. In fact, the scheme can arguably be seen as a way of agreeing dismissals, that may simply lead to an increase in unemployment.

Pre-retirement usually has a high cost for companies, which they accept with a view to achieving greater productivity and competitiveness in the future. This is why it is often applied in companies with high profits. It is even likely that companies in which pre-retirement would be more advisable are unable to use it due to lack of funds.

In agreeing pre-retirement schemes, the workers' committees in the companies concerned seem to have a dual objective: guaranteeing the best possible conditions for the workers going into pre-retirement; and obtaining in exchange improvements in employment in the company. This is illustrated by the recent agreement at Endesa. Here, workers aged 50 or over can take pre-retirement if both they and the company agree. After two years of receiving unemployment benefit, the company will pay the workers 80% of their wages from the age of 50 to 55, 85% from 56 to 59 and 90% from 60 to 64, whereafter they retire. With the employer meeting social security and other contributions, and increasing payments annually in line with the cost of living, these workers will not lose purchasing power, or only slightly. However, the workers' committee appears to have little possibility of intervening if the company fails to meet its obligations years after the workers have left. During the validity of the Endesa plan, from 2000 to 2005, it has been agreed that 20% of the workers taking pre-retirement will be replaced by new employees.

The government's position

The government has for some time been stating that it wishes to tighten the conditions for pre-retirement in order to reduce the resulting expenditure from the public benefits system. Of course, it cannot intervene in pre-retirement or termination of contracts because these are matters freely agreed between employers and workers. In the past few years, the government - most recently the Minister of Labour in November 2000 - has stated that it would be advisable to increase the actual retirement age (incentives in this area are being studied) with the dual objective of increasing the income of the public pension system and taking better advantage of existing human resources. The trade unions have opposed this measure because they feel that lengthening working life is not consistent with improving living conditions and well-being, and because it would hinder further the access of young people to the labour market. However, the unions are not against tightening the conditions for pre-retirement in order to make it less attractive.

Commentary

Pre-retirement is raising serious problems on several levels. First, it involves a considerable cost to the exchequer and/or the pension system. Indeed, for two years the workers involved receive unemployment benefit from the National Institute of Employment (Instituto Nacional de Empleo, INEM). If the company should fail to meet its economic obligations, the public system would have to pay these workers non-contributory benefit from the age of 52 to 60, as for other unemployed people. Workers taking pre-retirement who have been contributing since January 1967 could take early retirement at the age of 60, so the company would have to make up only the rest of the "normal wage income" agreed in the redundancy procedure.

There is a second problem arising from the functioning of the labour market. Although it is true that many of these workers - in particular those who are closer to retirement age - wish to take real retirement, there may be others who are still young and have economic needs that make them return to work, but in the clandestine employment market. The experience and qualification that some of them have will facilitate this. This not only hinders the regulation of the labour market, but also hinders the access of other people to it.

Finally, it is no less important to point out - as the CES does - that getting rid of workers who are so young and so experienced is a waste that society cannot afford. Given that many companies may have over-large or unbalanced workforces due to economic changes, one must design a reform with specific programmes to allow these mature workers at the prime of their working capacity to return to employment. (Fausto Miguélez, QUIT)

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