How does flexible retirement work? Find out how to combine work with your retirement pension

When you are planning your savings to improve your future and you analyse your expected retirement thoroughly, you have to work out the pension you will be entitled to as well as the fixed expenses you will have and how much you can save.

Another possible option is to continue working while drawing your pension benefit after retirement. But, do you know what types of pensions there are, and which ones allow you to work and draw your pension at the same time? There are different ways to do this and we will show you all the options. Today we are going to talk about one in particular, flexible retirement, and all its details. Let’s begin!

What is flexible retirement?

First of all, let’s take a closer look at the definition of flexible retirement. It occurs when someone is fully retired and wishes to combine their retirement pension with a part-time contract. In other words, they go back to working as usual, back to the employment status they had left. However, the working hours must be between 50% and 75% of the normal hours for that job.

A new employment contract is therefore drawn up, and the Social Security system must be informed of the situation so that it can apply the reduction in the pension. This will be proportional to the working hours of that person. Workers in flexible retirement will continue to pay contributions until they finally retire, and only then will they return to their full pension. It is important to remember that the new employer of the pensioner opting for flexible retirement cannot be the same employer as they had before they retired.

Who can apply for flexible retirement?

This option can be applied for by workers in all Social Security Schemes, except for the Special Schemes for Civil Servants, Armed Forces personnel and the Administration of Justice.

Recalculation of the pension after final cessation of the work activity

When you decide to opt for flexible retirement and choose to work part-time, your pension is initially reduced. However, the contributions you make during this period of part-time work will have a positive effect on your final pension when you decide to retire permanently. In other words, the additional contributions will help to increase the amount of your final pension after you stop working part-time.

Requirements for flexible retirement

As mentioned above, a pensioner opting for flexible retirement must meet the following criteria:

• Their return to work must be under a part-time contract with a reduction in working hours of between 25 and 50% compared to a full-time worker.
• They cannot be self-employed.
• For the duration of the part-time contract, contributions are paid under the same rules applying to any other worker.
• Flexible retirement may not be combined with any permanent disability benefits arising due to the activity performed after retirement, regardless of the Scheme under which these pensions are generated.
• The flexible retirement pension can be received alongside temporary disability or maternity benefits related to the part-time activity.

Differences between flexible retirement and the different types

There are more than 10 million people receiving a pension in Spain. 63% are for retirement, 23.6% for widowhood, 9.5% for disability and 3.4% for orphans, according to the Ministry’s data. The number of pensioners has grown and only 5% receive the maximum pension.

The answer to the question of whether it is possible to continue working and receive your pension is yes, it is possible to combine retirement with a job However, it will depend on your situation and the type of retirement scheme you are interested in. Let’s take a look at the main differences between flexible retirement and the other options that are compatible with an employment contract.

Differences between active retirement and flexible retirement

Active pensioners, who retire at the standard age and contribute, may work full time or part time and receive 50% of the pension as long as the contract remains in force. In this option, the contributory pension can be combined with any type of employment, with no limit on working hours. However, this is done with a reduced contribution. To qualify for this type of pension, retirement must be at the normal retirement age, and a level of contributions must be reached that allows 100% of the corresponding pension to be paid.

In general, it is possible to combine the activity with drawing 50% of the retirement pension. The main difference with flexible retirement is that the contributions made during active retirement do not generate rights to recalculate the pension or increase its amount. The full benefit will simply be received once final retirement is reached. The second difference is that self-employed workers with at least one employee can receive the full pension during active retirement, whereas the flexible option is only compatible with being a part-time employee.

Difference between flexible retirement and partial retirement

In partial retirement, the worker who has reached the legal retirement age continues to work part time (25%-85% of the time). Partial retirement is considered to be that which begins after the age of 60 and where there is a part-time employment contract.

The reduction in working hours or part-time contract will depend on the type of partial retirement. They should meet all the requirements to receive a contributory retirement pension. In other words, they need to prove they have been paying contributions to the Social Security system for at least: 15 years, two of which must be included within the 15 years leading up to retirement.

When the retirement age is lower than the normal retirement age, a relief contract or a fixed-term contract is mandatory. In contrast, in flexible retirement, the person is already a pensioner and returns to work.

Partial retirement for the self-employed is possible, although the final terms and conditions for accessing this option have not yet been laid down in the regulations.

Other retirement options

Let us tell you about other options allowing you to work after retirement. Take note!

• Early Retirement. This refers to applying for early retirement, at a minimum age of 63. The current legislation allows you to apply for this type of early retirement, but only if you meet the requirements of being registered as a worker and proving a contribution period of at least 37 years and 9 months or more. Of course, you can take the money from your pension scheme when you retire early, even if you still have a job.
• Normal Retirement. This is the most common form of retirement and it is what workers do when they reach the retirement age established by law, at the age that corresponds to them. However, it is still possible to combine the public retirement benefit with work, although in these cases the worker will only receive half of the pension that corresponds to them.
• Delayed Retirement. In this case a worker has not actually retired, that is, they retire at a later age than the age at which they are entitled to retire. In this option, they will not be able to earn any retirement benefit from the pension scheme, although continuing to work beyond retirement age has incentives under this option. In this case, it is driven by an increase in the pension, with the intention of extending their working life. The pension will rise by between 2% and 4% for each full year contributed beyond the corresponding age.

Is it possible to receive 100% of the retirement pension and keep working?

The Spanish General Social Security Law includes the option of being self-employed and, at the same time, receiving 100% of the retirement pension, as long as the annual income derived from this activity does not exceed the Minimum Interprofessional Wage (Salario Mínimo Interprofesional - SMI) set for that year. Although these pensioners are not obliged to pay Social Security contributions, they must comply with the tax responsibilities of self-employed workers.