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Edits: Pensions in Spain Introductory Paragraph

Mandatory state pension scheme.

Non-Contributory Pensions:

Contributory Pension:

Private Pensions:

Social Security Reserve Fund:

Possible Reforms:

Spanish Pension System Reforms: The necessity of reforming Spain’s pension system arose largely in response due to pressure resulting from Spain’s demographic trends. A growing and ageing population and a declining fertility rate are two sources of significant strain upon Spain’s public budgets, as a public pension system with a smaller productive population that contributes through taxes has to compensate for a growing demographic of elderly retired workers who will receiving pensions, living longer, and will likely be in need of costly health services. This demographic reality is predicted to continue in the coming decades, with the World bank predicting that half of Spain’s population will fall into an age demographic older than 55 by the year 2050, and if this prediction becomes a reality than Spain would have one of the highest median ages in the world (3). In addition to a growing elderly demographic of pensioners, Spain also has a high child gap (the difference between the highest number of children and the number that couples want) (5), and trends suggest that the total fertility rate is in a decline. Spain’s average birth rate was 2.86 in 1970, 2.21 in 1980, and 1.21 in 1994, and according to Eurostat, Spain’s average birth rate was 1.18 in contrast with the European Community’s average of 1.43. At this point in 1994, Spain is 44% below the minimum rate needed to achieve generation replacement (8). In light of these demographic trends challenging the sustainability of Spain pension system, reforms and austerity measures have sought to reduce the generosity of the state’s pension benefits and create incentives and changes to keep older workers in the labor force for a longer period( 4). One of Spain’s key reforms to implement this policy is to increase the retirement age from 65 to 67 over a number of years, but this change will occur gradually over a 14 year period that started in 2013 and ends in 2027. The change will increase by a month and a half each year, to make the change less disruptive to the population (6). However, this new retirement age does have exceptions to make it more flexible-individuals who have the maximum years of contributions will be able to retire at the age of 64, and it will also be possible that in cases of involuntary unemployment that have 33 year of contributions that that early retirement can be up to four years before the retirement age. Legal retirement age in the case of voluntary unemployment will require 35 years of contributions (1) Partial retirement is also a possibility from the age of 61 in 2016, if a new employee is brought in and once the reform is completed in 2027, partial retirement will be possible at the age of 63 if 36 tears have been contributed. Both the new and the partially retired employee will contribute fully to the pension system. Prior to the reform, partially retired only contributed proportionally of the working day effectively worked (1). Individuals who work in dangerous, hazardous, or unhealthy conditions will also be able to retire before the new cap, alongside individuals with assessed disabilities of 65% or more, and in cases of reduced life expectancy individuals will be able to retire at a lower age if they have a 45% or more assessed disability(2). The reforms will encourage workers to delay retirement and the withdrawal of pension benefits after retirement age by creating incentives. Workers that have contributed between 15 and 25 years and continue working after the age of 67 will be able to increase their pension benefits by 2% of the base calculation per additional year, and this increase will scale depending on the years of contribution. Up to 4% if worker have 37 years of contributions (1). Other significant reforms to the pension system will concern the minimum period needed that must be contributed before a pension can be secured. The minimum being 15 years but like the retirement age will rise in a staggered manner up to 25 years of contributions(6) Pension reforms will also address the needs of the family by covering maternity and paternity periods with up to three years of leave of absence for childcare, and in the case of maternity, a supplement will apply to contributory pensions for retirement, widowhood, and permanent disability as of 2016. This assitional percentage of contributory pension will increased to up to 15 % in cases depending on the number of children (1) this is one incentive to address the issue of Spain’s current fertility rate, and how Spanish woman tend to have their first child relatively late in life (9). An additional reform will also come into effect in 2019, when calculations based on life expectancy, the number of pensioners, and the financial situation of the pension system replace the previous inflation based system. To oversee that these measures continue to be implemented, a committee will also be appointed to report on the sustainability of the pension system in a period manner(7).