Early retirement due to unemployment; all the keys

Requirements and reductions for early retirement due to unemployment.

In general, a worker must reach the established legal age in order to retire. Beginning with the 2011 reform, this age is set to increase progressively to 67 years in 2027, except for those who have been contributing for a long time, who may continue to retire at 65 years.

However, in certain cases it is possible to reach retirement before this age. This is called early retirement and may be voluntary if the person concerned wants to stop working or involuntary if it is due to certain unemployment situations. Below, we go over all the key information for understanding early retirement due to unemployment, the requirements you must meet to apply for it, and the reductions that it entails for your pension.

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What is early retirement due to unemployment?

Early retirement due to unemployment, which is also known as involuntary early retirement, is especially pertinent to unemployed people close to retirement age who may find it difficult to rejoin the labor market. However, it is not enough for the applicant to be unemployed; he or she must also meet a series of requirements to apply for this type of retirement.

On the one hand, early retirement can be an advantage, as the newly retired person stops receiving unemployment benefits and starts receiving a state pension, which is usually higher. Furthermore, as this pension is an early retirement, it is also subject to certain reductions. This way, depending on the years spent contributing, a specific reduction coefficient is applied. The reduction is also applied definitively to the pension.

It is also important to remember that, although the unemployment situation may affect the pension to be received, it does not mean that the worker stops making Social Security contributing for his retirement. Provided that a contributory benefit or the so-called subsidy for people over 55 years old is received, the beneficiary of these grants is considered to continue making Social Security contributions for his or her retirement.

Requirements for early retirement due to unemployment

  • To access this type of retirement, the applicant must be a maximum of four years below the legal retirement age. As mentioned above, after the last reform of the pension system, this age increases every year until reaching 67 years in 2027. Therefore, depending on the year in which you want to access early retirement due to unemployment, the minimum age of the applicant must be 61, 62 or 63 years. It will be 61 years in any case for those who apply an ordinary age of 65 years. It must also be taken into account that, for the purposes of determining the applicable ordinary age, the period leading up to retirement will be considered as time spent contributing.
  • Another essential requirement is that the applicant must be registered as a job-seeker in the National Employment System for at least the six months immediately prior to the date on which he or she applies for retirement. If the period in which the interested party has been registered as a job-seeker is less than six months, the applicant must wait to be able to submit his or her application.
  • With regard to the number of years making Social Security contributions, the established requirement is a minimum of 33 effective years of contributions, of which at least two must have occurred in the 15 years prior to the application. For the exclusive purposes of substantiating this vesting period of 33 years, it is possible to compute up to 12 months of military service or alternative social service.
  • The way in which the individual stopped working is another aspect to consider. Workers whose professional activity has ceased as a result of company restructuring may opt for this retirement. For example, any collective dismissal for economic, technical, organizational, or production reasons is included under this scenario; contract termination by order of a court; or the loss of employment due to the death, retirement, or incapacity of the sole proprietor, among others. In other words, this law prevents those who have been unfairly dismissed from their job from retiring early, for example. The previous law did allow this in certain circumstances during 2019 for the purposes of transitioning.
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Reductions applicable in the event of early retirement

Early retirement, whether voluntarily or not, involves a series of reductions on the value of a public pension. The reduction applicable in each case depends on the number of years of contributions paid by the worker.

In the case of early retirement due to unemployment, the maximum reduction is 1.875% per quarter or fraction of a quarter in early retirement (7.5% per year) for workers who have paid contributions for less than 38 years and 6 months. If the time spent contributing is equal to or greater than 38 years and 6 months but less than 41 years and 6 months, it is 1.750%; (7% per year). The next contribution tranche is between 41 years and 6 months and 44 years and 6 months, to which a reduction of 1.625% is applied (6.5% a year). Applicants with a contribution period equal to or greater than 44 years and 6 months obtain the minimum reduction of 1.5% (6% per year).

Now that you know all the requirements you must meet for early retirement due to unemployment and the reduction this entails for your pension, it's time to start thinking about the future. Whether you do not meet the requirements or you are worried about a reduced pension, a pension plan is your best ally. Thanks to this financial product, you will have private savings to supplement your pension and obtain greater peace of mind. At BBVA we know how important it is for you to be able to guarantee your economic security once you reach retirement, which is why we offer a wide variety of pension plans for all types of profiles. Visit bbva.es or any BBVA branch to discover yours.

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