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Thursday, 25 February 2010 00:00

More years before we can retire

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Retirement pensions were established because of peoples’ lack of income when they leave their professional or working life because of their age. Beneficiaries of this pension are those workers that once they have reached a minimum age and have worked for a minimum amount of time, leave their job. The minimum retirement age in Spain is 65 years old. Currently, this limit is being revised in several countries, as life expectancy keeps increasing, this means an increase in the total social expenditure for pensions and a larger source of income is required to maintain the modern pension systems. The ageing of the population is caused by a very low birth rate, which has existed for many years and tends to be even lower in certain areas, putting the public pension system at risk.

Social Security’s coffers are starting to run out in Europe while the Governments are trying to guarantee benefits. Right now, the Spanish Government is considering pushing back the retirement age to 67 years old. This decision stems from the great difficulties the Government is experiencing regarding Social Security. Discussions on this extension of the retirement age are also taking place in other European countries. France, with the earliest retirement age in Europe at 60 years old, wants to extend it; Germany has approved an extension to 67 years old. For the next few years, the new German Coalition Government will freeze any increase in pension amounts and starting in 2012, will change the retirement age to 67 years old. A demographic bomb is already ticking in Germany: as of 2030, for every 100 working persons there will be 75 pensioners. In addition to this problem, there will be a decrease in Social Security’s cash income, due to more than 4.5 million of persons receiving unemployment benefits.

In Spain, the Government insists that we should act before these problems (derived from public moneys reduced due to an increase in unemployment) happen. The unemployment rate was 19 % in the last quarter of 2009 and will likely increase to 20%. An ageing population in Spain will be more noticeable than in most of the EU. In 2025 the problems will get worse when a very large generation reaches its retirement age while other smaller generations will reach their working age. In other words, there will be a larger older population needing to be maintained by fewer Social Security payers.

Some European organizations have advised the Spanish Government to push back the retirement age to 67 years old, arguing that this is an “absolutely correct” measure. The Organization for Economic Construction and Development (OECD) also recommends that Spain should link the retirement age to the average life expectancy, which in Spain is 81 years old.

However, Spanish labor unions are completely against any such measure.

In Spain, workers must have paid into Social Security for a minimum term of 15 years in order to be entitled to receive a retirement pension. The amount of such pension is determined by applying a percentage to the calculation basis; such percentage varies depending on the years the worker has paid into Social Security. Thus, the more years we pay into Social Security, the more we receive as a retirement pension. Such pension is for life and only disappears when the receiver dies. In Spain, the maximum retirement pension, i.e., with no discounts, is obtained after working 35 years.

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