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Government may use automatic system to adjust pension qualification criteria and rights

Labor reform relaxes rules on working retirees

The government plans to create a panel of experts to study the introduction of an automatic adjustment mechanism for state pensions on the basis of parameters such as life expectancy and the contributions required for entitlement to a pension in order to ensure the sustainability of the system, Labor Minister Fátima Báñez said Friday.

Báñez made the announcement after the Cabinet on Friday approved a decree tightening regulations regarding early and partial retirement. The decree also lowers the costs to companies of labor force adjustment plans that include few employees over the age of 50 and allow workers, with the exception of civil servants, to combine paid employment while collecting pension benefits.

An earlier reform of the pension system introduced by the previous Socialist government will gradually raise the retirement age from 65 years to 67 years through to 2027. The Labor Ministry estimated that the latest reform will save the Social Security system some five billion euros.

Workers taking voluntary early retirement will now need to have contributed to the Social Security system for a minimum of 35 years in order to be entitled to do so as opposed to 33 at present. The minimum age for entitlement is to be increased gradually from 63 years and one month from this year to 65 in 2027. Those taking early retirement will also see their pensions reduced.

The discount for those who have paid into the system for up to 38 years and six months will be eight percent, falling gradually to 6.5 percent in the case of those who have made contributions of 44 years and six months or more.

In the case of forced early retirement due to the loss of a job, the minimum age for access has been set for this year at 61 years and one month, rising to 63 years in 2027. The minimum number of years of contributions for qualification was increased to 33 years from 30 years.

Those people granted early retirement under this modality will have their pension benefits reduced by 6 percent for every year up to the official pensionable age in the case of those who have made contributions of over 44.6 years, rising to 7.5 percent for those with 38.5 or fewer years of contributions.

The initial age threshold for partial retirement has been set at 63 years and one month for 2013 increasing to 65 years in 2027, while the contributions threshold has been set at 33 years and at 25 years for those with a disability. Workers must also have been with their employer for a minimum of six years. Those on partial retirement will have their working day reduced by between 25 and 75 percent.

One of the novelties of the reform is the possibility of those who have reached the official retirement age combining either full-time or part-time work either as an employee or as a freelancer while receiving an ordinary pension. There also exists the option of deferring pension benefits. Previously, the option of combining work with a pension was open only to freelance workers earning no more than the minimum wage.

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