How is the retirement pension calculated?

As we already advance in the results of the Survey of the Week, 72% of the readers do not know the procedure to calculate their future retirement pension and therefore, we will dedicate a post within our section of Concepts of Economy.

If we recall the functions of Social Security, we can appreciate how its character as a protector of the population is its main figure. At the time of retirement and the end of our active period, the loss of income from work or cases in which there is a substantial reduction in salary at the age of 65, is covered by the economic benefits of the Security Social through the granting of the retirement pension. To calculate your PF interest rate you can check your account using uan login.

Types of retirement pensions provided by Social Security

Social Security, within its universal nature, has two types of retirement pensions.

•        Contributory pension, which is the one to which workers who have contributed in any scheme for more than fifteen years in their working life and two years of contributions are entitled to within the last fifteen.
  
•        Non-contributory pension, for all cases that have not reached the 15 years quoted in their working life. These pensions cover cases of disability and retirement and the requirements and amounts are transferred to the respective autonomous communities.
  

To access the contributory retirement pension, you must be 65 years old as a general rule and it is mandatory for all workers who are not in a job or situation assimilated to discharge (unemployment, temporary disability ...). However, there is a form of early retirement at 60 years for workers with status of mutual with more than 30 years and 61 years, for all registered workers who have been quoted for more than 30 years.

Finally, as more residual cases, we find ourselves with partial retirement, as a mechanism that makes it possible to reconcile income from work income and retirement pension from the age of 60 onwards, including continuing to work after the age of 65 with a contract for retirement. Relief and flexible retirement, such as retirement that allows you to be on high with a part-time contract after being retired.

For special regimes, employment regulation files and some specific situations, retirement is allowed with ages prior to those mentioned, but in no case, you can access the retirement pension with less than 52 years.

Calculation of the amount of the retirement pension

To calculate the retirement pension to which we are entitled, we need to know exactly our days in employment or situations assimilated to the discharge and the daily or monthly contribution bases of each of the periods in discharge. With this information in our possession, the next step that takes place is the calculation of the regulatory base.

The regulatory base

The regulatory base is the arithmetic mean of the updated contribution bases of the last fifteen years quoted, eliminating the extra payments and updating the oldest contribution bases based on the accumulated CPI from the year that is considered the contribution base to the date of retirement. In other words, to calculate our regulatory base, we will select the 180 contribution bases for the 15 immediately preceding years (equivalent to all the contribution bases of the 15 years) at the date of retirement.

For example, suppose a contribution base of 850 monthly in the year 1995. This contribution base is equivalent to 1,286.90 euros updated. The income update tool of the INE is very suitable for this type of calculations.

The reducing coefficients and percentages to apply

Once the regulatory base of our retirement pension has been calculated, we proceed to apply reducing coefficients. These coefficients reduce the retirement pension based on the years quoted by applying a percentage on the calculated regulatory base.

That is, if a worker has a regulatory base of 1,000 euros but has only contributed 15 years, his retirement pension will be 500 euros, 50% of the regulatory base. To access the total collection of the regulatory base as a pension, you must have quoted more than 35 years in the sum of all the regimes.

For workers who continue to work with more than 65 years, they increase their pension by 2% for each additional year they have quoted if they have more than 40 years of contributions in total during their working life. In addition, for all workers who credit more than 40 years of contributions, they improve the amount of the pension by 3%.

Conclusions

As we can see, getting a retirement pension with a high amount requires many years of contributions, at least more than 30, and a contribution base that is as high as possible in the last fifteen years of working life. However, all this calculation system will undergo modifications with the reform of the pension system that the Executive has in mind, so to evaluate the changes that can be introduced in the calculation, it is essential to know how we are currently within the calculation of pensions.