Modification of the pension system

(Law 21/2021 of 28 December on guaranteeing the purchasing power of pensions and other measures to strengthen the financial and social sustainability of the public pension system).

Below are those modifications that refer mainly to the different retirement options contained in the aforementioned law, as well as the novelties in widowhood benefits for unmarried couples, although the law also includes other provisions relating to the passive classes.

The law begins by amending article 58 of the General Law on Social Security (LGSS – RD 8/2015) with the aim of maintaining the purchasing power of contributory pensions, including the amount of minimum pensions, from 1-1-2022.

In this way, pensions will be revalued at the beginning of each year by the percentage equivalent to the average value of the year-on-year rates of change expressed as a percentage of the CPI for the 12 months prior to December of the previous year.

If the average value is negative, the amount of pensions will remain unchanged at the beginning of the year.

Therefore, a new form of pension revaluation is introduced with the consequent repeal of the revaluation index, and the guarantee of purchasing power is recovered through the updating of pensions in line with inflation in the corresponding financial year.

Developments in retirement benefits

The ordinary retirement age, contribution period and age required for 2022 and temporarily for the following years are shown in the table below:

Year	Contribution periods	Age requirement
2022	37 years and 6 months or more	65 years
	Less than 37 years and 6 months	66 years and 2 months
2023	37 years and 9 months or more	65 years
	Less than 37 years and 9 months	66 years and 4 months
2024	38 years or more	65 years
	Less than 38 years	66 years and 6 months
2025	38 years and 3 months or more	65 years
	Less than 38 years and 3 months	66 years and 8 months
2026	38 years and 3 months or more	65 years
	Less than 38 years and 3 months	66 years and 10 months
From 2027 onwards	38 years and 6 months or more	65 years
	Less than 38 years and 6 months	67 years of age

Early retirement due to reasons not attributable to the worker

Access to early retirement due to termination of employment for reasons not attributable to the free will of the worker will be subject to the following requirements:

• Attain an age that is no more thanfour years younger than the ordinary retirement age. In the anticipation of the ordinary age, the reduction coefficients for arduous activities cannot be taken into account, nor can the regulations on anticipation associated with disability.
• Be registered with the employment offices as a job seeker for a period of at least six months immediately prior to the date of application for retirement.
• A minimum effective contribution period of 33 years, without the proportional part for special payments being taken into account for these purposes. For these sole purposes, only the period of compulsory military service or substitute social service or compulsory female social service shall be taken into account, with a maximum limit of one year.
• The termination of employment must have occurred for one of the following reasons:
  • 1.ª Collective dismissal for economic, technical, organisational or production reasons, in accordance with article 51 of the revised text of the Workers’ Statute Law.
  • 2.ª Dismissal for objective reasons in accordance with article 52 of the revised text of the Workers’ Statute Law.
  • 3.ª Termination of the contract by judicial resolution in the cases contemplated in the revised text of the Insolvency Act, approved by Royal Legislative Decree 1/2020, of 5 May.
  • 4.ª The death, retirement or incapacity of the individual employer, without prejudice to the provisions of Article 44 of the revised text of the Workers’ Statute Law, or the extinction of the legal personality of the contracting party.
  • 5.the termination of the employment contract due to the existence of force majeure ascertained by the labour authority in accordance with the provisions of Article 51.7 of the revised text of the Workers’ Statute Law.
  • 6.the termination of the contract at the employee’s will for the reasons set out in Articles 40.1, 41.3 and 50 of the revised text of the Workers’ Statute Law.
  • 7.the termination of the contract at the worker’s will due to being a victim of gender violence, as provided for in article 49.1.m) of the Workers’ Statute Law.

In cases of collective, objective dismissal and in cases of termination due to the worker’s will (art.40.1,41.3 and 50 of the Workers’ Statute), the worker must alternatively prove: having received the corresponding compensation derived from the termination of the employment contract by bank transfer or having filed a lawsuit claiming said compensation or contesting the termination decision. In the case of this type of early pension, the amount of the pension is reduced per month in advance (not per quarter) of the normal retirement age, in accordance with the following table.

In any case, the coefficients are applied to the amount of the pension resulting from applying the percentage corresponding to the months of contribution to the regulatory base.

In addition, the following guarantee is established: if, once the aforementioned reduction coefficients have been applied, the resulting amount of the pension cannot be higher than the amount resulting from reducing the maximum pension ceiling by 0.50% per cent for each quarter or fraction of a quarter in advance.

	Contributed period: less than 38 years and 6 months	Contributed period: equal to or more than 38 years and 6 months and less than 41 years and 6 months	Contributed period: 41 years and 6 months or more and less than 44 years and 6 months	Contribution period: 44 years and 6 months or more
Months of early retirement	% reduction	% reduction	% reduction	reduction % reduction
48	30,00	28,00	26,00	24,00
47	29,38	27,42	25,46	23,50
46	28,75	26,83	24,92	23,00
45	28,13	26,25	24,38	22,50
44	27,50	25,67	23,83	22,00
43	26,88	25,08	23,29	21,50
42	26,25	24,50	22,75	21,00
41	25,63	23,92	22,21	20,50
40	25,00	23,33	21,67	20,00
39	24,38	22,75	21,13	19,50
38	23,75	22,17	20,58	19,00
37	23,13	21,58	20,04	18,50
36	22,50	21,00	19,50	18,00
35	21,88	20,42	18,96	17,50
34	21,25	19,83	18,42	17,00
33	20,63	19,25	17,88	16,50
32	20,00	18,67	17,33	16,00
31	19,38	18,08	16,79	15,50
30	18,75	17,50	16,25	15,00
29	18,13	16,92	15,71	14,50
28	17,50	16,33	15,17	14,00
27	16,88	15,75	14,63	13,50
26	16,25	15,17	14,08	13,00
25	15,63	14,58	13,54	12,50
24	15,00	14,00	13,00	12,00
23	14,38	13,42	12,46	11,50
22	13,75	12,83	11,92	11,00
21	12,57	12,00	11,38	10,00
20	11,00	10,50	10,00	9,20
19	9,78	9,33	8,89	8,40
18	8,80	8,40	8,00	7,60
17	8,00	7,64	7,27	6,91
16	7,33	7,00	6,67	6,33
15	6,77	6,46	6,15	5,85
14	6,29	6,00	5,71	5,43
13	5,87	5,60	5,33	5,07
12	5,50	5,25	5,00	4,75
11	5,18	4,94	4,71	4,47
10	4,89	4,67	4,44	4,22
9	4,63	4,42	4,21	4,00
8	4,40	4,20	4,00	3,80
7	4,19	4,00	3,81	3,62
6	3,75	3,50	3,25	3,00
5	3,13	2,92	2,71	2,50
4	2,50	2,33	2,17	2,00
3	1,88	1,75	1,63	1,50
2	1,25	1,17	1,08	1,00
1	0,63	0,58	0,54	0,50

Early retirement at the will of the worker

Access to early retirement at the will of the person concerned is subject to the following requirements:

• Have reached an age that is no more thantwo years younger than the ordinary retirement age. In bringing forward the ordinary age, the reduction coefficients for arduous activities cannot be taken into account, nor can the regulations on bringing forward the age associated with disability.
• Proof of a minimum effective contribution period of 35 years, without the proportional part for special payments being taken into account for these purposes. For these sole purposes, only the period of compulsory military service or substitute social service, or compulsory female social service, shall be taken into account, with a maximum limit of one year.
• Once the general and specific requirements for this type of retirement have been met, the amount of the pension to be received must be higher than the amount of the minimum pension that the person concerned would be entitled to on reaching the age of 65. If this is not the case, early retirement is not possible.

In cases of access to early retirement at the will of the worker, the pension will be subject to reduction through the application, for each month or fraction of a month that, at the time of the triggering event, the worker is short of the ordinary legal retirement age, of the coefficients resulting from the following table according to the accredited contribution period and the months in advance:

	Contribution period: less than 38 years and 6 months	Contribution period: equal to or more than 38 years and 6 months and less than 41 years and 6 months	Contributed period: equal to or more than 41 years and 6 months and less than 44 years and 6 months	Contribution period: 44 years and 6 months or more
Months of early retirement	% reduction	% reduction	% reduction	reduction % reduction
24	21,00	19,00	17,00	13,00
23	17,60	16,50	15,00	12,00
22	14,67	14,00	13,33	11,00
21	12,57	12,00	11,43	10,00
20	11,00	10,50	10,00	9,20
19	9,78	9,33	8,89	8,40
18	8,80	8,40	8,00	7,60
17	8,00	7,64	7,27	6,91
16	7,33	7,00	6,67	6,33
15	6,77	6,46	6,15	5,85
14	6,29	6,00	5,71	5,43
13	5,87	5,60	5,33	5,07
12	5,50	5,25	5,00	4,75
11	5,18	4,94	4,71	4,47
10	4,89	4,67	4,44	4,22
9	4,63	4,42	4,21	4,00
8	4,40	4,20	4,00	3,80
7	4,19	4,00	3,81	3,62
6	4,00	3,82	3,64	3,45
5	3,83	3,65	3,48	3,30
4	3,67	3,50	3,33	3,17
3	3,52	3,36	3,20	3,04
2	3,38	3,23	3,08	2,92
1	3,26	3,11	2,96	2,81

For the sole purpose of determining the said legal retirement age, the age that would have corresponded to the worker had he/she continued to contribute during the period between the date of the triggering event and reaching the ordinary legal retirement ageshall be considered as such.

For the purpose of calculating contribution periods, full periods shall be taken, without any fraction of a period being treated as a period.

When at the time of taking this type of retirement the worker is receiving unemployment benefit, and has done so for at least three months, the reduction coefficients foreseen for early retirement for reasons not attributable to the worker will be applicable, without prejudice to the fulfilment of the requirements mentioned above for access to the voluntary early retirement pension.

Active retirement

The retirement pension, in its contributory form, shall be compatible with the pensioner’s work as an employee or self-employed worker, under the following terms:

• Access to the pension must have taken place at least one year after reaching the ordinary retirement age, without being admissible for such purposes, retirements under bonuses or anticipation of the retirement age that may be applicable to the interested party being admissible.
• The percentage applicable to the respective regulatory base for the purpose of determining the amount of the pension caused must reach 100 percent.
• The compatible work may be carried out as an employee, either full-time or part-time, or as a self-employed person.

The amount of the retirement pension compatible with work will be equivalent to 50 percent of the amount resulting in the initial recognition, after applying, if applicable, the maximum public pension limit, or that which is being received, at the time the compatibility with work begins, excluding, in any case, the minimum allowance, whatever the working day or activity carried out by the pensioner.

However, if the activity is carried out on a self-employed basis and proof is provided that at least one employee is employed, the amount of the pension compatible with work will be 100%. Once the employment relationship is terminated, the full retirement pension will be reinstated.

Therefore, it is no longer required that companies have not taken unfair dismissal decisions in the 6 months prior to such compatibility. It is also no longer required that, once the compatibility between pension and work has begun, the company must maintain, during the term of the retirement pensioner’s employment contract, the level of employment existing in the company prior to its commencement.

Finally, it should be remembered that active retirement is not applicable to cases of holding a job or senior position in the public sector that are incompatible with the receipt of the retirement pension.

Retirement after the normal retirement date (delayed retirement)

When the retirement pension is taken at an age above the ordinary retirement age, i.e. delayed retirement, and provided that the minimum contribution period has been accredited on reaching this age, a financial supplement is paid for each full year of contributions since the requirements to qualify for this pension were met.

The person concerned, once the right to the supplement has been recognised, may choose (once only) to have it paid in one of the following ways:

• An additional percentage of 4% for each full year of contributions made between the date on which he reached that age and the date of the event giving rise to the pension. This percentage is added to the percentage generally applicable to the person concerned and is applied to the regulatory base. The amount of the pension may not exceed the maximum amount fixed annually. If the pension awarded reaches the maximum amount without applying the additional percentage or only partially applying it, the person concerned is also entitled to receive annually an amount obtained by applying the additional percentage not used to determine the amount of the pension to the maximum amount, rounded up to the nearest whole number. This amount is payable monthly in arrears and in fourteen instalments, and the sum of its amount and the amount of the pension or pensions that the person concerned has been awarded, on an annual basis, may not exceed the amount of the maximum ceiling of the contribution base in force at any given time, also on an annual basis.
• A lump sum for each full year of contributions paid between the date on which he reached that age and the date of the event giving rise to the pension, the amount of which will be determined according to the number of years of contributions credited on the first of the dates indicated, the calculation formula being as follows:
  • If you have contributed less than 44 years and 6 months:
  • If you have contributed at least 44 years and 6 months the above figure is increased by 10%:
• As a third option, a combination of the two previous solutions is offered in the terms to be determined by regulation. The option made is the only one and cannot be changed. If no choice is made, it is understood that the first option (additional percentage) is preferred. It is not possible to receive this supplement in the case of partial or flexible retirement, or when retirement was taken from a situation assimilated to discharge. Receipt of this supplement is incompatible with access to active retirement.

Compulsory retirement

In order to encourage the extension of working life, collective agreements signed from January 2022 onwards may establish clauses that make it possible to terminate the employment contract when the worker reaches the age of 68 or over, provided that the following requirements are met:

• The worker affected by the termination of the employment contract must meet the requirements stipulated by the Social Security regulations in order to be entitled to 100% of the ordinary retirement pension in its contributory form.
• The measure must be linked, as a coherent employment policy objective expressed in the collective agreement, to generational replacement through the full-time, indefinite-term hiring of at least one new male or female worker.

Exceptionally, with the aim of achieving real and effective equality between women and men by helping to overcome occupational segregation by gender, the limit in the previous section may be lowered to the ordinary retirement age, set by Social Security regulations, when the employment rate of female employees affiliated to Social Security, in any of the economic activities corresponding to the functional scope of the agreement, is less than 20 per cent of the persons employed in the same.

The economic activities that will be taken as a reference to determine compliance with this condition will be defined by the codes of the National Classification of Economic Activities (CNAE) in force at any given time. It is also worth mentioning that with effect from 1-3-2022, the managing entity will automatically recognise a supplement, in the form of a pension, in favour of those who took early retirement between 01/01/2002 and 31/12/2021 and a maximum of four years before reaching the ordinary retirement age, for people who took early retirement involuntarily, and two years before reaching the ordinary retirement age for those who took early retirement voluntarily.

To do this, it is necessary to check that the beneficiary has at least 44 years and six months of contributions, or, if the amount of their pension is less than 900 euros on 01/01/2022, at least 40 years of contributions, and that the application of the new reduction coefficients approved by the reform are more beneficial than those applied when the early retirement was recognised.

For these purposes, the difference will be the amount of the supplement. Finally, we indicate below the minimum annual amounts of contributory retirement pensions for the year 2022:

Contributory retirement	With a dependent spouse	Without spouse (single-person economic unit)	With non-dependent spouse
Holder aged 65	12.272.40 €/year	9.945.60 €/year	9.440.20 €/year
Holder under 65 years of age	11.506.60 €/year	9.305.80 €/year	8.794.80 €/year
Holder with 65 years of age due to severe disability	18.407.20 €/year	14.919.80 €/year	14.159.60 €/year

Novelties in widow’s and widower’s benefits for unmarried couples

Article 221 of the LGSS is modified, simplifying the requirements for access to the widow’s/widower’s pension for unmarried couples, eliminating the economic dependency that, until now, was required to qualify for this pension, thus putting them on a par with widow’s/widower’s pensions for married couples.

Likewise, the widow’s/widower’s pension for unmarried couples will be compatible with any income from work, i.e. it may be compatible with a temporary or permanent disability, unemployment benefit or retirement pension, except with another widow’s/widower’s pension, in any of the social security schemes.

Alternatively, the new law introduces an additional provision for unmarried partners who, having applied for a widow’s or widower’s pension, have been refused, in accordance with the wording of art. 221 of the LGSS as it was drafted in 2007 for not meeting the requirement of economic dependency, may apply for it during the year 2022.

Notwithstanding the above, the recognised pension will have economic effects from the first day of the month following the application.

AddVANTE remains at your disposal for further information or to resolve any queries that may arise in relation to this article.