Wednesday, November 29

Retiring early is now more expensive

Delaying the retirement age is one of the objectives of the first part of the pension reform approved by the Government that came into force this year.

The Minister of Social Security, Jose Luis Escriva, aims to bring the actual retirement age, now around 64.5 years, closer to the legal age which for 2022 is established at 66 years and two months if less than 37 years and 6 months of Social Security contributions are accredited.

For those workers who have contributed longer, the ordinary retirement age is 65 years.

Early retirement hardens

Those who want to retire early can take advantage of voluntary early retirement, but sacrificing part of their pension.

They can do it from the age of 63 those who have a history of contributions of 37 years and six months or more, and at 64 years and 2 months if they have contributed less time, but, at least, it is required to have contributed 35 years, of which two must be included in the 15 years prior to retirement.

In addition, the pension they receive must be higher than the minimum pension that would correspond to them upon reaching their legal retirement age; if it is lower, they will not be able to retire early.

loss in pension

The main consequence of retiring early is the penalty suffered by the retiree in his pension throughout his retirement, which the current reform has tightened by modifying the reduction coefficients that apply from this year.

They are applied based on the number of months in advance of the retirement age and the total contribution period.

From January 2022, the coefficients are monthly, that is, for each month of advancement of the retirement age, instead of quarterly as up to now, and apply to the amount of the theoretical pension -calculated based on the number of years quoted and the contribution bases- and not on the regulatory base as was the case before.

How to calculate the pension?

The first step to know the amount of the pension is to calculate the regulatory basis. As of 2022, the 25 years of contributions prior to the retirement date are taken into account, that is, 300 months of contribution.

To calculate the regulatory base, the sum of the contributions of those 300 months is divided by 350. If there are contribution gaps, the first 48 monthly payments without contributions are integrated with one hundred percent of the minimum contribution base in force in those months. The rest, with 50 percent of the minimum base among all.

In the self-employed regime there is no integration of gaps, the months without contributions are counted as a zero amount.

Coefficients depending on the years quoted

Before applying the coefficients for anticipating the retirement age, other coefficients are applied depending on the years of contributions.

With 15 years of contributions, you will be entitled to 50 percent of the regulatory base and to be entitled to one hundred percent, you must contribute a minimum number of years, which will vary depending on the year of retirement. In 2022 they are 36 years old. As of 2027, 37 years of contributions will be necessary.

Reduction coefficients

The final step consists of apply the monthly reduction coefficients to the pension for early retirement, depending on the number of months in advance and the accumulated contribution period.

This represents a novelty with respect to the previous regulations, in which the reduction coefficients, which were quarterly, were applied on the regulatory basis.

Discounts from 21 to 2.81 percent

The new coefficients are situated between minimum and maximum ranges: in the event of having contributed for less than 38 years and 6 months, anticipating retirement will entail a reduction in the pension of among 21 percent -24 months before- and 3.26 percent -1 month before-.

With more than 38 years and 6 months of contributions and less than 41 years and 6 months, the maximum reduction will be 19 percent -24 months in advance- and the minimum 3.11 percent -1 mes-.

If you have more than 41 years and 6 months of contributions and less than 44 years and 6 months, the reduction coefficient for those who retire 24 months earlier will be 17 percent. If they retire a month earlier, the reduction will be 2.96 percent.

And those who are over 44 years old and have contributed for 6 months will have a reduction of 13 percent in case of retiring two years before and 2.81 percent in case of doing it a month before.