For the average Spaniard, going into retirement means collecting a public pension and nothing else. In 1990 less than 5% of the employed population had a private pension; while this figure has risen to 30% in 1999, still less than 1% of the population derives more than 10% of their retirement consumption needs from private savings or private/employer pensions. Public Pensions expenditures currently account for 9.5% of annual GDP; this compares to 4.5% of annual GDP spent on Social Security in the U.S. in 2002.
The pattern of Labor Force Participation in Spain is similar to that of France, Germany and Italy. Just under half (46.5%) of the population retires by age 60, although reform efforts have attempted to slowly increase the de facto age of retirement.
There are a variety of Social Security schemes but the largest is the Régimen General de la Seguridad Social (RGSS) which covers about 70% of all workers. Special programs for specific classes of workers include: Régimen Especial de Trabajadores Autónomos (RETA) for the self employed, Régimen Especial Agrario (REA) for agricultural workers, and the Régimen Especial de Trabajadores del Mar (RETM) for sailors.
The RGSS plan is a pay-as-you-go system and contributions are 28.3% of gross income (23.6% paid by the employer and 4.7% paid by the employee). Entitlement to an old age pension requires 15 years of contributions and is conditional on having reached 65 years old. Pensions are paid out as follows:
‘BR‘ is the base reguladora which is calculated by summing an inflation adjusted measure of earnings in the last 96 months before retirement dividing this number by 112. Those with more than 15 years of service receive a value of ‘a’ which increases from 0.5 as the number of years of service increases and is capped at 1 for those with 35 or more years of working. Thus, people who worked over 35 years can expect to have about 85% of their average real earnings replaced through the public pension system–subject to a pension minimum and maximum.
Under the RGSS, early retirement is available but individuals are charge a penalty of 8% for each year retired under 65. Some individuals in hazardous jobs (railroad workers, airline workers, and of course bullfighters) or workers laid off for industrial restructuring can retire at age 60. These groups represents about 10% of early retirees. For government workers, the Régimen de Clases Pasivas (RCP) allows workers to retire at age 60 if they have accumulated enough work experience.
A more common means to reach retirement is through unemployment insurance (UI). The UI program in Spain ranges between 120 and 720 days, however, a special program exists for those aged 52 and above. This ‘UI 52+’ program includes those who a) would otherwise be eligible for a pension, except for their age, and b) have an income below 75% of the monthly minimum wage. The benefits are paid until the individual reaches RGSS eligibility at age 65 and are set at 75% of the monthly minimum wage. Other individuals elect to go on early disability–which involves a complicated set of eligibility rules which will not be discussed here.