Companies criticised for pre-retirement schemes

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Over the summer of 1999, the Spanish Ministry of Labour has criticised the pre-retirement schemes of many companies on grounds of their cost to the country's social security system. Though many of the companies involved are the largest and most profitable ones, they are increasingly using early and pre-retirement as part of their labour strategy. The government is therefore now seeking ways of toughening the conditions for eligibility.

The increasing use of pre-retirement by companies in Spain is leading to an increase in the number of people leaving the labour market before full retirement age: one in three Spaniards now takes retirement before the age of 60. Most of these people enter into the unemployment protection system, which allows them to receive non-contributory benefits from the age of 52 until retirement age. At present there are 282,000 people over the age of 50 in the unemployment protection system (two out of three receiving non-contributory benefit), which means that 33% of the total number of claimants uses this system as a form of pre-retirement pay.

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. Both early retirement and pre-retirement involves a large reduction in the size of the pension. For early retirement, reduction coefficients are applied for every year before the age of 65 (if workers take retirement at 60 they lose 40% of the pension). For pre-retirement, receiving non-contributory benefit means that the basis on which final pension is calculated is very low.

Pre-retirement involves greater cost for the social security system than early retirement. This explains statements during summer 1999 by spokespeople from the Ministry of Labour, criticising the pre-retirement programmes of many companies - especially given that the principal companies involved are the largest ones with the highest profits - and the announcement that the government is studying ways to toughen the conditions.

Most companies that apply pre-retirement are large ones in sectors like automobiles, banking, telecommunications and energy. In 1999 alone, the four largest Spanish banks - BSCH, BBV, Banco Popular and Argentaria- will apply pre-retirement to over 5,000 workers. Another example is Telefónica, which at the beginning of June presented the unions with a new proposal to reduce the workforce over the next two years. Under the terms of the proposal, most of the reductions will be in the form of pre-retirement for workers between the ages of 52 and 59, but this formula may also be applied to workers between the ages of 42 and 51.

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