A new law resulting from an agreement between the government and social partners provides incentives for extending working lives, along with other measures aiming to modernise the social security system. Recent figures published by the Economic and Social Council reveal an increase in both early retirement and partial retirement. The reform measures seek to counteract this trend by making extended working more attractive to older workers.
On 22 November 2007, the Congress of Deputies approved the Social Security Measures Law, which provides for a general reform of the social security system. The law is based on the Agreement of 13 July 2006 between the government, the Spanish Confederation of Employers’ Organisations (Confederación Española de Organizaciones Empresariales, CEOE), the Spanish Confederation of Small and Medium-sized Enterprises (Confederación Española de Pequeñas y Medianas Empresas, CEPYME), the General Workers’ Confederation (Unión General de Trabajadores, UGT) and the Trade Union Confederation of Workers’ Commissions (Confederación Sindical de Comisiones Obreras, CC.OO).
Main provisions of law
The law provides for the following main elements:
- incentives for extending working life – workers who decide to continue working between the age of 65 and 70 years will receive an annual pension increase of 2%, or of 3% for workers who have been making contributions for 40 years, up to a maximum increase of 15% overall. Companies will be exempt from paying contributions for these workers;
- an increase in the minimum period of contribution required to receive a retirement pension from 13 to 15 years;
- a tightening of criteria for access to partial retirement – workers must now be aged 61 or over, accrue a period of seniority of six years in the company immediately prior to retirement, and have made contributions for at least 30 years;
- a slight improvement in the pensions of workers who took early retirement as a result of a dismissal or restructuring of the workforce before 1 January 2002 and have made contributions for 35 years;
- an extension of the right to a widow’s pension to common law couples who have lived together for at least five years and have children together;
- an entitlement to early retirement for people with disabilities.
Reaction of social partners
The social partners approve of the measures contained in the law, which fall within the framework of the social security reforms agreed in the Toledo Pact (ES9710220F). Both the incentives for extending working lives and for fostering different forms of flexible retirement are seen as necessary measures for guaranteeing the viability of the social protection systems.
Provisional assessment of flexible retirement measures
However, these regulatory developments have a limited impact as they will affect few people. According to figures recently published by the Economic and Social Council (Consejo Económico y Social, CES) – based on a study of the transition to retirement in the Survey of the Working Population (EPA) carried out among working people aged over 49 years – only 9% of the individuals who are willing to continue working intend to retire after the age of 65; the majority of these people attribute this to economic reasons, such as increasing their pension entitlement. Furthermore, the measures laid down in the reforms contradict the widespread practices in companies, as is shown by the increase in early retirement, which represents 47% of total retirement.
In other cases, the measures already in force have had perverse effects. The CES figures indicate that the sharp increase in partial retirement, which represents 28% of early retirement cases, may be an unintended consequence of existing legislation. The aim of this type of flexible retirement is to help older workers remain in employment. However, almost all of those who opt for partial retirement do so at the age of 60 years and with a high level of contributions; as a result, their benefit amount is far higher than the average for retired persons aged over 65.
The changes in the regulations, introduced by the reform, seek to reorient these legal measures, making them more attractive to older workers and making the extension of social protection compatible with the long-term viability of the system.
Juan Arasanz Díaz, QUIT, University Autònoma of Barcelona (UAB)