What is flexible retirement?

We'll tell you everything you need to know about how to receive a retirement pension while also working on a part-time basis
After a lifetime of working, it's quite common for us to want to get to retirement and be able to take on those new projects we once set aside for work, or just take up new hobbies. However, there's one thing that's also more common than you might think: those who have retired but who miss going to work because it provides a schedule and something to do, or those who want to top-up their income from their state pension. There are different kinds of pension arrangements for people in these situations that enable them to combine receiving part of their pension with an occupational or professional activity. One of these is known as flexible retirement.
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As the name suggests, it enables retirees to make their pension compatible with an employment contract, provided the following requirements are met:

  • The applicant is not a member of the Special State Employees Schemes, the Armed Forces or the Justice Department.
  • The applicant's retirement pension has been processed. Meaning that the beneficiary has reached retirement and is in receipt of the corresponding Social Security pension.
  • The new employment activity must be on a part-time basis. The regulation requires that the working hours of the retiree be between 50% and 75% of the full-time equivalent in the corresponding workplace.

Once the Social Security verifies that the applicant for flexible retirement meets all the requirements, it's quite simple. The amount of the retirement pension is reduced proportionally to the working hours to be carried out by the retiree. For instance, if the retiree works a half day, their pension for retirement will be cut 50%.

Flexible retirement also means that the retiree is still contributing to the Social Security. This will ensure that, once you have finished working part-time, your retirement pension will be re-calculated based on the new overall contribution period. On the other hand, although you would be contributing as an employee, in terms of healthcare benefits, the flexible retiree stays in the regime applicable to pensioners.

Notify the Social Security of the flexible retirement

Although this may seem obvious, it's important to remember that if a retiree wants to join the flexible retirement scheme, it is mandatory that they notify the Social Security. This is important, first of all, so that the entity can reduce the amount of their pension accordingly and, secondly, so as to ensure there are no incompatibilities that end up having a negative impact.

The notification of part-time employment is usually done via the corresponding employment agency, which is usually the Spanish National Social Security Institute (INSS). This entity is responsible for reducing the pension proportionally to the working hours to be performed. Ultimately, the adjusted pension begins being paid on the same start day as the part-time job contract entered into.

It is essential to give notification of the change from retiree to flexible retiree before returning to work, since failure to do so would mean that the portion of the pension corresponding to the working hours is being unduly claimed. This incompatibility would mean the retiree would have to refund all corresponding monies in full, without prejudice to possible fines that may be imposed.

In addition to being aware of the mandatory nature of notifying about the new regime, it is also crucial to know what benefits are compatible with flexible retirement and which ones are not.

  • Compatibility: flexible retirement is compatible with maternity benefits and temporary disability deriving from part-time employment activities.
  • Incompatibility: flexible retirement is incompatible with permanent disability benefit that may correspond to the activity carried out after the retirement pension was granted.

Recalculation of the pension for retirement after employment has ended

During the effective flexible retirement period, the beneficiary is employed. And, as such, is making Social Security contributions; so when he/she stops working, their retirement pension entitlement will have improved. Thus, when the flexible retiree notifies that they have stopped working for good, the Social Security will fully restate their pension for retirement, but will first recalculate the amount taking into account the new Social Security contributions made during the flexible retirement period.

The new pension amount must meet three standards:

  • The new applicable regulatory base is recalculated using the new contribution base and in accordance with the regulations prevailing at the date employment ends. If when the new standards are applied, the new regulatory balance were to be lower than the previous one, the former would be maintained. Any revaluations made from the date the regulatory base was determined to the date work ended, will, of course, be added to the pension amount.
  • Contributions made after the reduction of the retirement pension will have two effects:
    • They will lead to a change in the percentage applicable to the regulatory base, based on the new contribution period.
    • They will reduce, or even eliminate, the reduction coefficient that would have been applicable when the early retirement pension entitlement was exercised.
  • In the event of death during flexible retirement, in order to calculate the corresponding death benefits and survivors' pensions, the following will be taken into account:
    • Active worker: the contribution base according to the employment situation of the testator.
    • If he/she is a pensioner: the regulatory base that was used to determine the pension for retirement; any restatements in this amount since that regulatory base was determined will be applied thereto.
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Ensure your quality of life in retirement

Although flexible retirement may seem to be the ideal formula for those who want to keep working part-time after retirement,in reality, most people take this option as a way to boost their contributions to improve their pension entitlements.

However, it's completely normal to be worried about what quality of life we will have with the Social Security pension for retirement. If this case applies to you, don't wait any longer and visit bbva.es to find out more about BBVA's Pension Plans. The bank has a wide range of plan options to meet the needs and expectations of investors of all profiles and ages.

Find out more and apply online in just a few short minutes for the product that will secure you a full and comfortable retirement.

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