Pension reform rows back on early retirement benefits

The Spanish government has refined its pension reforms, delaying the age of retirement, in order to cut social security expenditure. The new measures tighten the eligibility criteria for people older than 55 to claim early retirement and to receive a partial pension; and also to get non-contributory unemployment benefits. The reforms also include the appointment of a committee of independent experts who will produce a report on the sustainability of the pension system.

Background

The sustainability of the pension system has been one of the main concerns of institutions across Europe, as well as the Spanish government, since the financial crisis began. A reform of the Spanish pension system was not, however, put into law until March 2011, after its main elements were agreed by the social partners and the socialist government at the time. The government felt it was vital to get the backing of the social partners in order to keep this sensitive issue within a broad social and political consensus, as has been the case since the mid-1990s.

The main aspects of the agreement on pensions, incorporated in Law 27/2011, included increasing the retirement age from 65 to 67 years. This change will be applied progressively between 2013 and 2027, the retirement age increasing by one month per year until 2018, and then by two months per year from 2019 to 2027. There will also be an increase from 15 to 25 years of social security contributions taken to determine the regulatory base of the pension. Also, the legal age of early retirement will rise from 61 to 63 years (ES1102031I).

The European Commission (EC) and the European Council welcomed the 2011 reform, stating in the Council recommendation on Spain’s 2012 national reform programme (26Kb PDF) that it was a significant step towards enhancing the long-term sustainability of Spain’s public finances. However, the Council also said the worsening of Spain’s economic prospects limited the impact of the reform and it asked for further measures to be taken.

Reform of the pension system

Following this recommendation, the Spanish government published, on 16 March 2013, Royal Decree 5/2013, setting out measures to encourage the continuity of working life for older workers and to promote active aging. The Decree states that the newly included measures aim to satisfy the Council’s recommendation on Spain’s 2012 national reform programme. Thus, the influence of European institutions on this reform is clear. The main aspects of the new reform on pensions include the following provisions.

Compatibility between pensions and work

Royal Decree 5/2013 approves a less restrictive regulation aiming to allow workers who achieve the legal age of retirement to combine either a full-time or part-time job with entitlement to 50% of pension benefits.

New regulation on early retirement

Royal Decree 5/2013 distinguishes between two different forms of early retirement (as did Law 27/2011): forced early retirement; and voluntary early retirement. To qualify for forced early retirement due to company restructuring, workers must be four years younger than the legal age of retirement; they should have been enrolled in the public employment service as a job-seeker for at least six months; and they should have contributed to the social security system for a minimum of 33 years. To qualify for voluntary early retirement, workers must be four years younger than the legal age of retirement and have contributed to the social security system for a minimum of 35 years. Previously, workers could access early retirement having contributed to the social security system for a minimum of 33 years.

Voluntary early retirement, as well as forced early retirement, will see pension benefits reduced by means of different annual coefficients, which will be applied based on the number of years of contribution to the social security system. These annual coefficients are higher than those regulated in the previous reform.

New regulation on partial retirement

Royal Decree 5/2013 raises the number of years that a worker must have contributed to the social security system to qualify for partial retirement from 30 years to 33 years. In addition, the maximum working time has been reduced from 75% to 50% of the worker’s original working time.

Collective dismissals of workers aged 50+

Royal Decree 5/2013 reforms the so-called ‘telephone amendment’ enacted by the previous socialist government in 2011. The telephone amendment stated that enterprises employing 500 or more employees, who apply for collective redundancy procedures affecting workers over the age of 49 will have to compensate the government for any state benefits to which the redundant workers might be entitled if their former employer has made a profit in the previous two years (ES1110011I). As of 1 April 2013, companies are only be forced to compensate the government if age discrimination exists; for example, if the percentage of workers older than 49 years of age involved in the collective dismissal is higher than the percentage of workers younger than 49 years of age working in the company.

New eligibility rules for unemployment benefits for persons aged 55+

Royal Decree 5/2013 has tightened the eligibility criteria for receiving non-contributory unemployment benefits for those older than 55. Accordingly, workers older than 55, whose unemployment contributory benefit has ceased and whose income is null, will not be entitled to unemployment benefits if they have children younger than 26 years of age whose combined income is higher than75% of the minimum inter-professional wage.

Sustainability factor

The reform proposes the appointment of a committee, made up of independent experts, who will be entrusted with the task of producing a report about the sustainability of the pension system. The regulation of the sustainability factor, which is still to be defined, implies a public commitment to periodically reviewing the pension system in order to maintain proportionality between contributions and payments.

Social partners’ views

The unions oppose the new reform. Thus, the General Workers’ Confederation (UGT) has published a report (in Spanish, 688Kb PDF), which criticises, first, the lack of social dialogue and consultation prior to the reform. The UGT also states that the new reform eliminates entitlement to early retirement for the majority of workers. Moreover, it is argued that it increases the risk of social exclusion for those older workers forced to access early retirement, bearing in mind the important reduction in the pension payment applied by means of annual coefficients. The Trade Union Confederation of Workers’ Commissions (CCOO) has also published a note on the pension reform (in Spanish), arguing that it reduces social protection and increases the risk of poverty.

The employers’ organisation, the Spanish Confederation of Employers’ Organisations (CEOE), has not published any official note assessing the reform.

Pablo Sanz de Miguel, CIREM Foundation

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