Spain’s recent pension reforms have marked progress toward greater flexibility around retirement, but barriers still limit older workers’ ability and willingness to remain in employment, the OECD has warned.

In its 2025 Economic Survey of Spain, the organisation stressed that despite recent improvements in retirement patterns, Spain has yet to overcome longstanding disincentives that have traditionally pushed workers out of the labour market once they reach the statutory retirement age.

The OECD reported that pension spending in Spain is projected to increase from 12.9 per cent of gross domestic product (GDP) in 2023, to 16.1 per cent in 2050. Despite Spain’s recent reforms relating to retirement, the OECD said a “sizeable funding gap persists”.

On a positive note, early retirements have fallen substantially, dropping from 44.5 per cent of new pensions in 2016 to 29.6 per cent in 2024, while late retirements have increased from 4.4 per cent to 9.3 per cent over the same period. Activity rates among older workers have also strengthened.

However, the OECD noted that part of these changes are driven by cohort effects, including better health, higher education levels and a transition to less physically demanding occupations, which are lifting retirement ages across many OECD countries.

Historically, Spain discouraged continued employment beyond the statutory retirement age, placing additional pressure on the pension system by reducing the number of employed individuals.

However, reforms since 2011 have gradually raised the statutory retirement age from 65 to 67 (phased in during 2013-27) and extended the contribution period for the calculation of pension benefits.

A further reform in April 2025 expanded the option to work while drawing a pension to all individuals entitled to one, provided they defer retirement by at least one year.

Under the new system, workers may receive 45 per cent of their pension after one year of deferral while continuing to work, rising to a full pension after five years. The deferral bonus has been redesigned to increase pension entitlements more gradually, offering a 2 per cent increase for every six months of work beyond 18 months of deferral instead of the previous annual increment.

Partial retirement provisions have also been revised to allow workers to reduce their hours up to three years before reaching the statutory retirement age, compared with two years previously. Employers are required to hire a permanent full-time replacement, with the intention of supporting a more gradual transition out of the workforce and strengthening intergenerational employment.

Despite these changes, the OECD cautioned that administrative complexity and limited understanding of entitlements may hinder the effectiveness of the reforms.
It warned that behavioural inertia and a lack of awareness could continue to prevent older workers from taking advantage of the new options.

The organisation argued that clearer, more accessible processes, including streamlined applications and benefit calculations, are needed to help individuals make informed decisions.

Improved personalised guidance, along with better access to training, job placement services and flexible working arrangements for older workers, would further support effective use of the reforms, it said.

It also said monitoring and evaluation will be essential to determine whether the new phased retirement options are achieving their objectives of raising employment at older ages and reducing early exits from the labour market.

In terms of policies to reduce pension costs, OECD said the Spanish government could consider introducing a life expectancy adjustment mechanism, either linking the statutory retirement age to life expectancy at retirement, or adjusting pensions based on life expectancy, as the eliminated ‘sustainability factor’ did, or through another mechanism.

“Re-activating the pension revaluation index and the sustainability factor would therefore mean smaller annual rises for all pensions and a one-off downward adjustment for future entrants,” the OECD said.

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