What does pre-retirement involve

What is pre-retirement and why you shouldn't confuse it with early retirement

Although they are sometimes used as synonyms, they are not. Pre-retirement has little in common with early retirement, aside from being a milestone in a person's working life. Very quickly, it can be said that early retirement is a way for a person to access their pension before the legal age. This early retirement is subject to a series of conditions, such as having paid social security for a certain number of years or meeting certain age conditions.

However, pre-retirement is not provided for in Social Security regulations and, in essence, is an agreement between the employer and the employee to end their employment relationship in conditions that allow the employee to reach statutory retirement with the same or similar economic guarantees as when they were actively employed. Let's see what pre-retirement involves in more detail.

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What are the most common situations for pre-retirement?

There are an infinitude number of cases in which pre-retirement can be used as a way of retiring that benefits both the company and the employee. For example, an older worker who is approaching retirement age but does not quite meet the requirements for early retirement may ask their company for a pre-retirement agreement. It is possible that the company is also interested in the agreement, in order to gradually renew its workforce. However, in the event of an agreement between the parties, it will not be possible to receive unemployment benefit.

It may also be the case that the company needs to reach a pre-retirement agreement with its workers when it is forced to apply an Employment Regulation Procedure (Expediente de Regulación de Empleo). In this way, the dismissal, which is always difficult, is compensated with an indemnity (often in the form of a monthly payment) that will help the worker to reach their retirement age under very similar financial conditions.

Finally, it is important to note that there are no specific requirements for taking early retirement, beyond those established by mutual agreement between the employee and employer. Therefore, there is no stipulated age, although the worker should be very aware of the number of years they have been paying social security for, mainly in order to receive an adequate pension upon retirement that allows them to maintain their lifestyle.

How does pre-retirement work

The most common cases of pre-retirement concern workers close to retirement age, but who do not yet qualify for early retirement. The employee and the company reach an agreement so that the worker receives a certain amount of money that supplements their unemployment benefit until the time they can finally take early retirement or ordinary retirement. However, in other cases the worker is included in a Collective Dismissal Proceeding through which they can access, at least, the redundancy payment that is set by law.

In the most common cases of pre-retirement, the worker usually receives a monthly income of between 60% and 100% of their salary. In many cases, this income is part of the indemnity that the company pays the worker as a result of their inclusion in a Collective Dismissal Proceeding.

Optionally, and if necessary, when the worker uses up their unemployment benefit (provided no agreement has been reached between the parties), they may claim the unemployment benefit subsidy, which can last between 6 and 18 months, provided that the recipient proves they have no income, not including any amounts received for legal redundancy payments.

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However, if the worker is over 55 years of age, which is the most typical case, this subsidy will extend until they reach the age to take early or ordinary retirement, with the condition of having no income always remaining in place, not only for themselves but for any income their spouse and any close relatives they live with receive as well.

In addition, the company usually collaborates in signing a Special Agreement for pre-retirement with Social Security to help to maintain contributions in order to be eligible for a retirement pension in line the salary received to date. This Agreement takes effect after stopping the contributory unemployment benefit, since up until that moment the same contribution base amount they had in the 6 months prior to pre-retirement is maintained.

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