What is the formula for calculating a pension?

Learn how to calculate the pension you will receive when you retire.
With the pension reforms carried out in recent years, more and more workers are concerned about the pension they will receive when they retire. Changes to the legal retirement age and the numbers of years of contributions required to receive 100% of the state pension have created some confusion when it comes to determining the amount of the pension. If you would like to have all your questions answered and find out about the formula for calculating your pension, read on.
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Factors to be taken into account regarding pensions

Calculating pensions depends on a number of factors that have been affected by changes made to legislation in recent years. The reform implemented under Act 27/2011 entails a progressive increase in retirement age, in the number of years of contributions required to receive 100% of the pension and in the number of years of contributions taken into account for calculating the pension. The reform culminates in 2027, with the age of retirement left set at 67, except for anyone who has paid contributions for at least 38 years and 6 months, who will be free to retire without penalty at 65. Another factor that affects the amount of the pension is the worker's contribution base. In this regard, the most important bases are the most recent. In 2019, the figures eligible for inclusion are those for the last 22 years. In 2022 and subsequent years, it will be the last 25.

On the other hand, the contribution system is a very important factor since the rules will be different depending on the system the worker is under. To decide the system that resolves the pension, the latest system with contributions is taken into account, provided that the contributions to the same demonstrate all the general and specific shortfall requirements. If this is not the case, the pension system is decided according to the system that does meet these conditions, even if it is not the last which was contributed to. If a worker has paid contributions on the general and self-employed systems, but neither of these meet the requirements, the pension is recognized according to the system with the most days with contributions.

Finally, a worker who has paid contributions in two systems can receive two pensions. To do this, it is necessary to meet the contribution requirements in each separately. If both are not being contributed to at the time of retirement, the contributions to both systems will be required to have been overlapping for at least 15 years. In any case, if you only receive one pension, you can calculate the contributions in the other system to which you have contributed.

How is a retirement pension calculated?

Two operations need to be performed to calculate the pension

  • Calculating the regulatory base. This base is an average of the worker's contribution bases over recent years. For calculating the regulatory base, the contribution base of the month of the date of retirement and that of the previous month are set aside. In 2019, the regulatory base was the quotient resulting from dividing the contribution bases in the 264 months prior to that of the month before the date of retirement by 308. In 2017 and subsequent years, it is calculated by dividing the sum of the bases of the 300 months prior to that of the month before the date of retirement by 350. It is important to take into account that the contribution bases are updated according to the CPI, except for the 24 prior to the date of retirement. 
  • The final pension will be the result of applying a percentage to this regulatory base, which will depend on the total number of years you have paid contributions. The minimum period of 15 years required to receive a pension grants the right to receive 50% of the regulatory base. In 2019, to receive 100% of the base, you must have paid contributions for a minimum of 35 years and 6 months. Since 2027, receiving the entire regulatory base will require having paid contributions for at least 37 years.
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Other considerations concerning pensions

Although the above are the general parameters, there are certain exceptions. One of these is the early retirement of certain workers who are not subject to penalties. For example, in the case of certain cases of disability or in the case of people whose work is exceptionally painful, dangerous, harmful or unhealthy, such as miners, firefighters and seafarers.

It is also important to take into account that Act 23/2013 also entails another added change. It is expected that from 2023, a further factor will be added to the formula: the sustainability factor. This new variable will adjust the amount of the pension to life expectancy with the aim of seeking equity in the pensions of workers who, having contributed the same to the system, retire at different times. A higher life expectancy presumably means that the pension will be received for longer, consequently, the monthly amount should be reduced to compensate for this.

Finally, calculating your pension can be useful for determining how much you should save for retirement and deciding how to invest and achieve a return on your savings. Pension plans are a savings and investment product specifically designed to guarantee an additional source of income for retirement. At BBVA, we also make our Future Planner available to you to help plan your retirement.

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