How does mandatory or early retirement due to involuntary termination work?

If you have to stop working, you may be able to draw your pension early due to compulsory retirement

Although news of dismissal is never pleasant, it becomes even more complicated if it happens in the last few years before retirement, because of the repercussions it made have on the final years of working life and, above all, retirement.

For anyone who stops working involuntarily, there is something called compulsory retirement that you can use in the 4 years before normal retirement age. It is known as early retirement following involuntary termination at work, and requires proof of at least 33 years of contributions, an involuntary termination on objective grounds of corporate restructuring and registration as a jobseeker for at least 6 months before the date of the retirement request.

Have you been affected by a compulsory retirement like this and want to know exactly what it means for you? If so, this is the place for you to find out more, and we can tell you something about what it means and, most important, what it means in terms of pension payments.

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Legal framework for compulsory retirement or early retirement on account of involuntary termination of employment

Since 17th March 2013 there has been a mechanism for compulsory retirement which applies when someone has to stop work. It is a channel to grant a benefit to a certain group of workers who, due to special conditions, are greatly prevented from accessing a general retirement.

The first key feature of this group, therefore, is age. In order use this early retirement mechanism, a person must be within four years of the legal retirement age. This is an absolute requirement to use this form of retirement. But there are more requirements:

  • Register as jobseeker at least six before the retirement request.
  • Prove that you have made contributions for at least 33 years.
  • The employment termination must be due to business restructuring.

What is a “business restructuring"? According to Social Security, under the Employment Rights Law (ET as the acronym in Spain), a business restructuring includes:

  • Collective dismissal, pursuant to art. 51 of the ET.
  • Dismissal for cause, pursuant to art. 52.c of the ET.
  • Contract termination by court decision.
  • Termination due to the death, retirement or incapacity of the individual employer, under article 44 of the Spanish Workers' Statute.
  • Contract termination due to force majeure under article 51.7 of the Workers' Statute.
  • For female workers, termination of employment as a result of gender violence.
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The implications of compulsory retirement or involuntary early retirement

By accessing this kind of compulsory retirement, the pension amount is negatively affected through reduction ratios. They may be up to 1.875% for every quarter or part of a quarter earlier than retirement age. Someone retiring the full 4 years early allowed would see their pension reduced by 30%. Why does this reduction apply? It's because someone who retires early is going to receive their pension for longer than someone who retires at the normal age, so in fairness the pension of the early retiree is reduced.

For all that, there is no doubting what they say: being dismissed close to normal retirement age is very bad news. Happening as it is at a difficult stage in someone's career, it doesn't leave them with much room to manoeuvre. But if you start young you can plan for it to a degree.

These types of circumstances include, for instance, those that increase the interest on pension plans; not only do you save tax when you pay in but your income will be noticeably higher when you retire. BBVA has a range of products for all ages and stages of working life, so a little planning today can make a much better tomorrow.

The full catalog of products is available at bbva.es, where you can also perform calculations and check the numbers of your pension for yourself.

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