Working retirement: The best pension option for self-employed workers in Spain?

It’s no secret that being self-employed in Spain is very hard. It’s particularly difficult financially to get off the ground whilst trying to afford to pay very high social security bills and dealing with a lot of complicated bureaucracy.

Another difficult part is that despite paying a lot in social security over the years, being self-employed means that you’ll get a much lower pension than employees.

According to official data from the Ministry of Inclusion and Social Security, the average pension for the self-employed is €1,008.80 per month, while employees receive an average of €1,665.50 per month.

This means self-employed workers Spain get €657 less a month in pension payments than employees of companies.

READ ALSO: Why Spain's self-employed get a far lower pension than employees

One of the ways to get around this is active retirement for the self-employed, which involves extending one's working life without completely giving up your pension.

If the idea of continuing to work beyond retirement age is appealing to you in order to top up your earnings, then it could be a good option.

This scheme seeks to encourage self-employed workers to continue working without having such a high tax burden.

How does it work?

Decree-Law 11/2024 details the laws around active retirement for the self-employed. It applies to those who are at least one year over the legal retirement age.

The retirement age is Spain is currently 65 for those who have accumulated 38 years and 3 months or more of contributions or 66 years and 8 months for those who haven't. By 2027, however, the retirement age will rise to 67 years.

Those who work an additional year beyond this can still get 45 percent of their pension payments at the same time. Those continue to work two more years can get 55 percent.

After three years figure rises to 65 percent, and after the fourth year you can get 80 percent. If you continue working for five years after retirement age, you can then begin to collect 100 percent of your pension as well.

Options for self employed people with employees

There is also another option for self-employed workers who hire at least one permanent employee and have done for at least 18 months. They can receive 75 percent of their pension from the first year.

These amounts are not a substitute for work, but rather act as supplement. They are added to the income you receive from your self-employment business.

READ ALSO: How to hire someone if you’re self-employed in Spain

What are the requisites?

The main thing to know, however, is that it’s not available to everyone, so you need to understand who it can benefit.

Active retirement for self-employed workers is restricted to certain people:

• Primarily people registered as individuals in the RETA (Régimen Especial de Trabajadores Autónomos) are eligible for this option. Corporate self-employed workers are excluded, even if they are listed as self-employed in the system.
• You must not have retired early.
• You must have contributed for at least 15 years - two of them in the last ten.
• You must have reached the ordinary retirement age, plus one additional year.

How do the social security payments work?

The good news is that active retirement for self-employed workers means that you will be paying a different social security contribution rate which is a lot lower than what a full-time self-employed person would pay.

Contributions are only made for occupational contingencies and temporary disability.

Self-employed in Spain: Do I have to register and pay tax if I earn below minimum wage?

Options for those who earn below minimum wage

If your self-employment income does not exceed the minimum wage, then there is possibility of receiving 100 percent of your retirement pension, whilst still working sporadically, below the minimum wage threshold.

This option does not require registration with the RETA system and is slightly different to the active retirement for the self-employed scheme.