What do you need to know if you are going to retire?
SAVINGS AND INVESTMENT I August 18, 2020
If you are planning to retire in the near future, you should continue reading this article because 2020 introduces changes in the age of retirement and the calculation of the years of contribution, as well as in the amount of the pension you will receive.
Changes in the age for entitlement to the retirement pension and its calculation are a result of the 2011 pension system reform, which delays the age of retirement until 67 years. This increase in the age requirement for retirement will be applied progressively until 2027. In 2020 the ordinary legal age to retire will be 65 years and 10 months. This age applies to those who have contributed less than 37 years; if you have reached or exceeded this number of years of contribution, you can retire as soon as you turn 65.
Regarding the years of contributions that are taken into account to determine the amount of the pension, in 2020 the last 23 years of contributions will be counted. It is expected that in 2021 the last 24 years and in 2022 the last 25 years of contributions will be counted, as established in the pension reform.
Thus, if you are going to retire this year, the contributions for your last 23 years of work will be used to calculate the statutory base of your pension. Specifically, during 2020 the statutory base will be the quotient resulting from dividing your contribution rates during the 276 months (23 years) immediately prior to the month before you retire by 322 (a figure calculated by multiplying the 14 retirement pension payments by the 23 years in question).
Let's look at an example to understand it better. For a worker with a contribution base of 1,823 euros per month, the sum of the bases corresponding to the 276 months amounts to 503,148 euros. Dividing this amount by 322 gives us an amount of 1,562.57 euros / month, which will be the statutory base from which the amount of your pension will be decided.
But, to find out exactly what the amount of your retirement pension will be, you have to apply certain percentages to this statutory base, depending on the number of years paying contributions. In 2020, in order to receive 100% of the statutory base a worker would need to have contributed for 432 months (36 years). If it does not reach this figure, the percentages applied are as follows: you would get 50% for the first 15 years, increasing from the 16th year by 0.21% for each additional month of contribution, between months 1 to 106, and 0.19% for the remaining 146 months.
Continuing with this example, if you had contributed for 30 years (360 months) in total throughout your working life, this would result in you receiving 50% in respect of the first 15 years (180 months); 0.21% for each additional month for the following 106 months (22.26%), and 0.19% for each for the last 74 months (14.06%). In total, you would receive 86.32% (50 + 22.26 + 14.06) of the statutory base (1,562.57 euros), i.e. 1,348.81 euros per month, as retirement pension.
But this is not all. Another change that you must take into account if you are going to retire soon is the 0.9% increase in pensions approved by the Government. This revaluation of pensions - both contributory and non-contributory as well as those of the passive types - will have a retrospective effect from 1 January, and will benefit more than 11 million people, according to the Social Security Office. For an average pension (995.76 euros) the increase will be around nine euros per month. Also, the approved Royal Decree guarantees the purchasing power of pensioners if the reference CPI deviates above this figure (0.9%) in 2020.
Now that you know the factors that can affect the final calculation of your pension, if you are going to retire in 2020 we recommend that you go to a Social Security office or visit their website to find out in detail what your pension will be.
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