How to get up to €12,000 more a year by delaying your retirement in Spain

Spain's Social Security system allows you to boost your pension by between €5,000 and €12,000 if you delay your retirement.

Bolstering your Spanish pension pot can be done in a couple of ways, namely increasing the annual amount by a certain percentage or opting for a lump sum payment.

In March 2023 the Spanish government made a series of reforms to the pensions system, the underlying thrust of which was to prepare the system for the impending retirement of the baby boomer generation throughout the 2030s and 2040s.

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Pension reforms

Agreed with major trade unions and business leaders, the wide-ranging changes increased minimum pension rates, increased maximum employer contributions, as well as implementing a 'dual system' to calculate the pensions of non-conventional careers and make sure people, the self-employed for example, do not lose out.

The reforms did not change the legal retirement age in Spain, however, which stayed at 65.

To claim a pension in Spain a minimum of 37 years and 9 months of contributions must have been paid. If this requirement is not met, the retirement age is set at 66 years and 4 months.

However, just because someone in Spain reaches the official retirement age does not mean they have to retire, and there are now a number of benefits available to all contributors if they decide to delay the retirement age whilst also bolstering their pension.

This is a scheme run by the Spanish Social Security department that seeks to incentivise those who voluntarily delay or postpone their retirement.

So, what are the incentives, how can you boost your pension and how much extra can you earn?

How to boost your pension pot in Spain

According to the Social Security website, voluntary delayed retirement “is the possibility for workers (self-employed or employed) to extend their working life once they have reached the ordinary retirement age.”

There are two options:

An additional 4 percent of your base for each full year contributed after reaching retirement age, added to the total pension amount.

A lump sum per year of contribution, depending on the number of years of contribution at retirement age, ranging from approximately €5,000 to €12,000, depending on how you do it, which is then paid out upon retirement.

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The additional 4 percent will be received with the arrival of the delayed retirement, "applying the percentage increase corresponding to the pension received each month".

In the case of the lump sum, "you can choose to receive a single payment at the time of retirement, with the amount varying according to the number of years of contributions at the date of retirement".

Technically speaking, you can combine the two options and receive a smaller lump sum payment whilst also boosting your monthly payment.

A handy tweet from the Social Security ministry outlines the options below:

⁉️Conoces los beneficios de demorar tu jubilación?❓
👉Podrás optar por:

🔵Un incremento mensual del 4% de tu pensión para toda la vida
🔵Una cantidad a tanto alzado en el momento de jubilarte
🔵Una combinación de las anteriores

➕info y ejemplos: https://t.co/gsHvvPAYQv pic.twitter.com/3aH0SdO5Um

— Revista de la Seguridad Social (@RvstaSegSocial) May 31, 2023

What does that mean in terms of pension payouts?

Let’s look at an example.

Say you’ve worked in 35 years and made 35 years of contributions to the Spanish social security system. Your initial pension pot works at to €1,500 per month, but you decide you want to postpone your retirement by two years to boost your pension.

What would you be entitled to?

Option 1: €120 per month more (4 percent more of the regulatory base)

Option 2: a lump sum payment of €15,414 (€7,707 per year of delayed retirement)

Option 3: a combination of the two options, meaning lump sum payment of €7,707 and an increased pension rate by €60 per month.