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Pension reforms in Spain: background summary

Characteristics of the Spanish old-age pension system

  • Public pensions are the most important source of income for people aged 65 and over. Contributory pension entitlement requires a minimum contribution period of 15 years. Non-contributory pensions are means-tested (as of 2016, annual personal income must be lower than €5,150.60).
  • Earnings-related (contributory) pensions are by far the most important. As of March 2016, Social Security was paying out 5.7 million old-age contributory pensions, the average monthly amount being €1,205 for men and €750 for women. As of 2016, the minimum monthly amount of a contributory old-age pension is €742.12, and the maximum is €2,995.16.
  • Non-contributory pensions have a much more limited coverage. As of March, 2016 the state has been paying out 254,820 non-contributory pensions, its normal monthly amount being €429.22.
  • At 81.9%, the gross average replacement rate for Spanish earnings-related public pensions is the highest in the EU, as of 2013 (2015 Ageing Report). The rate compares the average first pension relative to the economy-wide average wage at retirement.
  • Occupational pension schemes have very limited coverage in actuality. Almost only large-sized companies tend to provide occupational pension benefits (usually defined contribution schemes).

Pension reform in Spain

  • The Spanish pensions system has undergone a number of reforms in recent years. A comprehensive reform was agreed in 2011 by the Socialist Government and main social partners, leading to the approval of Law 27/2011. Key aspects of this law were subsequently modified without the agreement of social partners by the Conservative government that took over in December 2011.
  • In 2011, the statutory retirement age was increased from 65 to 67. The increase is being gradually applied over the period 2013-2027. As of 2016, the retirement age is 65 years and 4 months. However, the retirement age of 65 applies only for those with exceptionally long periods of contribution (as of 2016, at least 36 years). 
  • Also in 2011, the reference period for calculating the pension was extended from 15 to 25 years. The extension is being phased in over the period 2013-2022. As of 2016, the reference period is 19 years, meaning that the pension is calculated with reference to the average contribution base during the 19 years immediately prior to retirement.
  • Also in 2011, the correlation between years of contribution and initial pension amount was changed. In order to receive 100% of the calculation base, beneficiaries used to need 35 years of contribution. As of 2016, they need 35 years and 6 months. In 2027, when the amendment will be fully implemented, the contribution period required to get 100% of the contribution base will be 37 years. For beneficiaries with the minimum contribution period of 15 years, the pension amount will remain at 50% of the calculation base. All intermediate correspondences between 50% and 100% will be changed accordingly.
  • As the result of an important amendment introduced in 2013, starting 1 January 2019, the initial pension amount will be affected by the “sustainability factor”. This factor, based on life expectancy, will adjust the initial amount according to a coefficient that takes into account the difference in life expectancy of different cohorts. The practical impact of this factor will be to reduce the initial pension amount by an estimated 5% every 10 years.
  • Also as a result of the same reform, annual pension revaluation is also affected. Annual revaluation used to be linked to inflation. The new indexation system takes into account a number of factors, especially social security revenue and expenditure and the number of contributory pensions. Still, the law guarantees that the index will never be lower than 0.25, or higher than the consumer price index plus 0.50.
  • A number of amendments in 2011 and 2013 have tightened up the legal requirements for partial early retirement. The new conditions are being phased in over the period 2013-2027. Furthermore, full early retirement is now subject to stricter conditions.
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