How Business Owners Face Retirement

Over the past few articles, we have discussed the main concerns the self-employed or autónomos face regarding their precarious financial situation and to close this trilogy, we will look at how autónomos face retirement and how it works (the condensed version).

It is a well documented cause of unrest amongst autónomos to know that upon reaching retirement age they will more than likely receive less than their counterparts who have worked under contract. A study from 2014 showed that the difference can be up to 465 euros a month. Why is that? The main reason is because most autónomos opt to contribute into the system on the minimum rate. As previously discussed, autónomos do not have a set salary so Social Security establishes minimum and maximum base rates from which to calculate monthly contributions. In 2015, the minimum rate is 884,40 euros and the maximum is 3.606 euros and of those amounts, autónomos can expect to pay a minimum of 29,8% as their monthly contribution. While there is good cause to do so at first so as to lower expenses, it is a good idea to increase the rate once the business takes off and generates enough income to cover the additional cost comfortably. The same study reveals that most autónomos receive an average monthly pension of 614,60 euros so it is a good idea to increase the monthly contribution at least 15 years before retirement age.

From 2013 after Government Labour Reforms, retirement conditions have changed as follows:

1. a) Retirement age was set at 65 years and one month and is gradually increasing to 67 years by 2017
2. b) The option exists to retire prematurely from 63 years of age as long as the autónomo has a work history of at least 35 years
3. c) A minimum period of 15 years of paying into the system was required up until recently, 2 of which must have occurred within the last 15 years but is gradually increasing also
4. d) The monthly pension amount due depends on the monthly contribution paid over the years as well as the number of years the autónomo has paid into the system

A new measure was introduced to combat a low pension in which the term “active pensioner” was coined. This measure allows a pensioner to combine their pension with self-employed labour and in which they would receive up to 50% of their pension at that stage and when they retire definitively, they would receive 100% of the corresponding pension. This measure allows them to simultaneously receive a pension and subsidize it with their own labour but in order to qualify, the person must have reached ordinary retirement age.

Other important changes

Premature Retirement: From 63 years of age as long as the person has contributed for at least 35 years

Delayed Retirement: The reform encourages workers who delay their retirement beyond the age of 67 by increasing their pension quota. For each additional year worked, the ratio would be 2% per annum if they have a total work history of less than 25 years; from 2,75% for those with a work history between 25 and 37 years; and 4% for those with a full work history.

Working mothers: The reform introduced a welcome addition to benefit working mothers as it acknowledges the fact they have interrupted their work history by taking care of their children.

For those who cannot accredit a minimum work history in Spain, their work history in other E.U. countries or other countries with an established agreement with Spain is taken into account so it is possible to receive the pension accumulated in those countries as well as the proportional part obtained in Spain. Remember that each individual is different so it is not possible to compare your particular circumstances with those of your neighbour for example. Note that labour and pension laws are in a state of change and the government is constantly accessing and adapting to new circumstances so always check current legislation.