Spain's new flexible retirement scheme includes the self-employed for the first time

The Spanish government is taking a step forward to complete the pension reform it began in 2021.

Ten months after the Ministry of Social Security unexpectedly submitted for public consultation a draft law regulating flexible retirement, the cabinet approved the new rules on Tuesday.

The reform aims to make it easier for pensioners to return to work part-time after retiring without losing their pension entirely. The government hopes the measure will encourage people to remain in employment for longer and help ease pressure on the pension system as Spain enters its most challenging decades with the retirement of the baby boomer generation.

One of the major innovations of the new flexible retirement scheme, which will come into effect three months after its publication in the official state gazette, is that it is now open to the self-employed for the first time.

This means that the self-employed can combine it with a business or employment, something that seeks to increase the number of recipients, given that only about 400 people request retirement each year.

Another benefit to encourage this type of retirement and help older workers maintain their careers is that there will no longer be a minimum waiting period after retirement to apply for flexible retirement. Instead, people at retirement age can access it at any time.

One of the main demands of the CCOO union is that it should not be necessary to leave one's job to access this type of retirement; that is, upon reaching retirement age, one can choose between retiring fully, continuing to work and accessing delayed retirement or switching to flexible retirement, which would mean a reduction in working hours.

According to the CCOO, this would make this type of retirement more appealing, since forcing people to leave their jobs and then receiving a new offer complicates the process.

The new regulations do, however, raise the minimum percentage of working hours from the current 25% to 33%. Similarly, the maximum percentage also increases from 75% to 80%. The working hours required to combine part-time employment with pension benefits will range between 33% and 80%.

In exchange for allowing pensioners to work longer hours, the government has introduced another major incentive to encourage flexible retirement: an increase in pension payments during the period in which retirees continue working. Under the new system, workers will receive an additional pension boost of between 15% and 25%, although they must remain in employment for at least six months before qualifying.

The amount of pension a worker receives will initially fall in proportion to the reduction in working hours. However, after six months, pensioners who work between 55% and 80% of a full-time schedule will receive an additional 25% increase on their pension, while those working between 33% and 55% of full-time hours will receive a 15% increase.

Self-employed workers will also be able to claim up to 25% of their pension while continuing their business activity.

However, the downside of the new flexible retirement scheme is that the government will no longer recalculate pensions for retirees who return to work. As a result, the additional period they spend paying social security contributions will not count towards increasing their pension once they stop working again, unlike under the current system.

Only pensioners who take early retirement involuntarily (for example after redundancy) will benefit from a pension recalculation when they return to full retirement after a period of flexible retirement. In those cases, authorities will recalculate both the contribution base and the applicable percentage according to the additional contribution period completed.

In practice, this means the new flexible retirement scheme will offer greater financial benefits while pensioners combine work and retirement, but lower benefits once they stop working completely and return to full retirement. Most pensioners will keep the same pension they received before returning to work, except for those who entered retirement following redundancy.