Returning to work after retiring
These days, retirement no longer means that an employee’s professional career or working life is over.
In previous posts in the blog we have looked at the possibility of imposing retirement as a means of ending an employment contract. In this entry, we will analyze the different mechanisms envisaged by labor legislation to enable a retired employee to combine his retirement pension with salaried employment.
The two main ways of prolonging an individual’s working life are known as “flexible” retirement and “active” retirement”. These mechanisms represent an employment opportunity for older employees and aim to increase their participation in the job market.
The former enables a retired employee to combine his pension with part-time work. In this case, the retired person continues to receive his pension. What occurs is that it is reduced according to the working hours established in the part-time contract. Thus, a retired person who starts to work under a part-time contact that provides for fifty percent of normal working hours, will automatically have his retirement pension reduced by fifty percent. He will therefore receive two sets of “remuneration” each month: on the one hand, the salary from his employer, and on the other, his retirement pension from the National Social Security Institute. The additional advantage of this method is that the new contributions for part-time employment will serve to improve the pension when the employment ends and the person returns to full-time retirement.
The other option to combine a pension with work allows the retired individual to perform his duties through a contract as an employee, or as a self-employed worker, provided that he retires at the ordinary retirement age, without taking early retirement and without social security reductions. The difference with the other method, is that these retired individuals may work either full-time or part-time. Irrespective of the type of work chosen, the legislation allows the pension to be reduced in all cases by fifty percent of the amount initially determined, excluding minimum contributory pension top-up supplements. During the new employment period, it is still compulsory to pay contributions, albeit reduced, but these new contributions are not computable for retirement. In exchange for such an advantageous regime, companies that employ workers such as these have certain obligations to maintain employment and certain limitations as regards dismissals.
Consequently, extending your working life and going back to work from a situation of retirement are possibilities that are accepted by the legislation in what are known as “active ageing” formulas. They can also be a good way to improve a retirement pension or to supplement a pension with remuneration associated with a job that is combined with a pension.
Garrigues Labor and Employment Law Department