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MONEY

How to get up to €12,000 more a year by delaying your retirement in Spain

The Spanish Social Security system offers a couple of ways to boost your pension, whether it be by increasing the payment base or receiving a one off lump sum, appealing options for those who aren't ready to retire yet.

Published: 28 August 2023 14:16 CEST
Updated: 3 September 2023 12:08 CEST
retiring late spain
To claim a pension in Spain a minimum of 37 years and 9 months of contributions must have been paid. Photo: Ezgi Yalçın/Pexels

Spain’s Social Security system allows you to boost your pension by between €5,000 and €12,000 if you delay your retirement.

Bolstering your Spanish pension pot can be done in a couple of ways, namely increasing the annual amount by a certain percentage or opting for a lump sum payment.

In March 2023 the Spanish government made a series of reforms to the pensions system, the underlying thrust of which was to prepare the system for the impending retirement of the baby boomer generation throughout the 2030s and 2040s.

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Pension reforms

Agreed with major trade unions and business leaders, the wide-ranging changes increased minimum pension rates, increased maximum employer contributions, as well as implementing a ‘dual system’ to calculate the pensions of non-conventional careers and make sure people, the self-employed for example, do not lose out.

The reforms did not change the legal retirement age in Spain, however, which stayed at 65.

To claim a pension in Spain a minimum of 37 years and 9 months of contributions must have been paid. If this requirement is not met, the retirement age is set at 66 years and 4 months.

However, just because someone in Spain reaches the official retirement age does not mean they have to retire, and there are now a number of benefits available to all contributors if they decide to delay the retirement age whilst also bolstering their pension.

This is a scheme run by the Spanish Social Security department that seeks to incentivise those who voluntarily delay or postpone their retirement.

So, what are the incentives, how can you boost your pension and how much extra can you earn?

How to boost your pension pot in Spain

According to the Social Security website, voluntary delayed retirement “is the possibility for workers (self-employed or employed) to extend their working life once they have reached the ordinary retirement age.”

There are two options:

An additional 4 percent of your base for each full year contributed after reaching retirement age, added to the total pension amount.

A lump sum per year of contribution, depending on the number of years of contribution at retirement age, ranging from approximately €5,000 to €12,000, depending on how you do it, which is then paid out upon retirement.

READ ALSO: Spain’s over 65s exceed 20 percent of the population for the first time

The additional 4 percent will be received with the arrival of the delayed retirement, “applying the percentage increase corresponding to the pension received each month”.

In the case of the lump sum, “you can choose to receive a single payment at the time of retirement, with the amount varying according to the number of years of contributions at the date of retirement”.

Technically speaking, you can combine the two options and receive a smaller lump sum payment whilst also boosting your monthly payment.

A handy tweet from the Social Security ministry outlines the options below:

What does that mean in terms of pension payouts?

Let’s look at an example.

Say you’ve worked in 35 years and made 35 years of contributions to the Spanish social security system. Your initial pension pot works at to €1,500 per month, but you decide you want to postpone your retirement by two years to boost your pension.

What would you be entitled to?

Option 1: €120 per month more (4 percent more of the regulatory base)

Option 2: a lump sum payment of €15,414 (€7,707 per year of delayed retirement)

Option 3: a combination of the two options, meaning lump sum payment of €7,707 and an increased pension rate by €60 per month.

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PENSIONS

Spain needs 25 million foreign workers to keep its pensions afloat

As the retirement of baby boomers looms, Spain's ageing population and declining birth rate mean the country will need millions of foreign workers to maintain its public pension pot and reinforce the labour market, the Bank of Spain has warned.

Published: 2 May 2024 09:46 CEST
Spain needs 25 million foreign workers to keep its pensions afloat

A recent study by the Bank of Spain estimates that the country will need up to 25 million more immigrant workers by 2053 in order to combat demographic ageing and maintain the ratio of workers to pensioners in order to support the pension system.

Without an influx of more foreign workers or sudden increase in the birth rate in Spain, something that seems very unlikely, experts fear that the growing disparity between working age people and pensioners could put the public pensions system in danger in the medium to long-term.

Like in many countries in the western world, the Spanish population is ageing, with the percentage of the population over 65 years of age predicted to peak in 2050, when almost one in three will be 65 years old or older.

READ ALSO: Spain’s over 65s exceed 20 percent of the population for the first time

By 2035 around one in four (26.0 percent) of Spaniards are expected to be 65 or older. That figure is currently around one fifth of the population.

Furthermore, this is compounded by falling birth rates. Spain’s birth rate hit a record low in 2023, falling to its lowest level since records began, according to INE data. Spain’s fertility rate is the second lowest in the European Union, with Eurostat figures showing there were just 1.19 births per woman in Spain in 2021, compared with 1.13 in Malta and 1.25 in Italy.

If nothing changes, the current ratio of 3.8 people of working age for every pensioner is predicted to plummet to just 2.1 by 2053, according to INE projections.

Maintaining this ratio seems unlikely moving forward, according to the report’s conclusions, something that would put pressure on pensions without significantly increasing social security contributions among working age people.

READ ALSO: Older and more diverse: What Spain’s population will be like in 50 years

The Bank of Spain report noted that “immigrants have high labour participation rates, generally above those of natives – in 2022, 70 percent and 56.5 percent, respectively.”

In three decades’ time, the INE expects Spain to have 14.8 million pensioners, 18 million Spanish nationals of working age and 12 million foreigners. To maintain the ratio, the Bank of Spain forecasts that the working immigrant population would have to rise by more than 25 million to a total of 37 million overall.

Of course, the arrival of 25 million working-age foreigners seems unlikely, if not impossible. To achieve this, around 1 million net migrants would have to enter Spain each year (discounting departures), a figure unprecedented in recent history. To put the figure in context, between 2002 and 2022 net arrivals in Spain reached five million, roughly five times less than what would be necessary to maintain the balance between workers and pensioners.

READ ALSO: ‘Homologación’ – How Spain is ruining the careers of thousands of qualified foreigners

Putting the economics aside, even if such an increase were statistically plausible, such a surge in net migration would be contentious both politically and socially. And it’s not even certain that increased migrant flows would be able to fill the gap in working age people and bolster public pensions: “The capacity of migratory flows to significantly mitigate the process of population ageing is limited,” the Bank of Spain warned in its report. 

What these projections suggest is that Spain’s public pension system will, in coming decades, likely have to be sustained by the contribution of fewer workers overall. This likely means higher social security payments. “Migratory flows have been very dynamic in recent years, but it does not seem likely that they can avoid the process of population ageing… nor completely resolve the imbalances that could arise in the Spanish labour market in the future,” the report stated.

The problem of ageing will also be transferred to the labour market and the types of jobs filled in the future. Increased migratory flows will soften the effect, but the labour characteristics of migrants coming to Spain may not match the job market in the coming decades. The jobs of the future, increasingly digital, will likely require qualifications that many of the migrants expected to arrive in the coming years do not have.

Consequently, the Bank of Spain suggests that “without significant changes in the nature of migratory flows, it does not seem likely that… [they] can completely resolve the mismatches between labour supply and demand that could occur in the coming years in the Spanish labour market.”

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