The Bank of Spain has analyzed how extending the calculation window for retirement benefits from 25 to 35 years would influence the typical starting pension. Their assessment indicates that expanding the calculation period to 35 years could reduce the initial pension by about 8.2 percent, according to a pension-focused document released this week. This insight is part of a broader examination of how future retirees might be affected by changes in the way pension bases are calculated.
Within the same report, there is attention to the stepwise extension that has already been underway. By gradually lengthening the period used to determine benefits from 15 to 25 years, with one additional year added each year since 2013, the data show a roughly 5 percent decrease in the average first pension. The pattern suggests that longer look-back periods tend to compress the early retirement payout, even as they aim to stabilize the system over time.
Despite this trend, the document notes that removing the least favorable years from the calculation base and pushing the window to 35 years can help moderate or even reverse some of the declines seen in starting pensions. In other words, excluding periods of weak contributions could offset some of the negative impact of a longer calculation horizon on the initial benefit offered to new retirees.
When considering the balance between different segments of the career contribution history, the report explores several intervals. If the optimal mix lies between 25 and 28 years within the overall 35-year window, the projected starting pension would still be lower than the outcome produced by using a calculation base tied to the 30 to 34 year range. The analysis underscores that small shifts in the chosen interval can yield noticeably different pension outcomes for new retirees, all else equal.
There is also a suggestion that a neutral reference point could be found at around 29 years. This would yield a pension level similar to what would be produced by adopting a 25-year look-back, creating a practical benchmark for policymakers considering reform. The idea is to identify a middle ground that preserves fairness while ensuring financial sustainability for the pension system over the long term.
On the other hand, the plan would lose some of its appeal if it allows for the worst 12 months of contributions to be ignored within the 35-year horizon. In that scenario, the average starting pension could drop by approximately 6.5 percent, illustrating how the treatment of irregular contribution periods can materially influence outcomes for individuals with gaps due to unemployment or interrupted work histories.
Overall, the option to discount the most unfavorable years appears to benefit workers who faced contribution gaps or periods of unemployment, as well as those who begin with below-average pension prospects. The broader effect of this adjustment would be a modest narrowing of disparities among new retirement benefits, contributing to a fairer distribution of retirement income across a diverse workforce. The findings emphasize that the design of the calculation window and the treatment of irregular contributions are central to shaping the early retirement experience for many individuals, not just in Spain but as a comparative reference for other pension programs in North America and beyond.
In practice, these insights offer policymakers in Canada and the United States a perspective on how extending the calculation period and selectively excluding certain low-activity years could influence first-pyr pension levels. While the specifics vary by country, the underlying principle remains consistent: calculation rules that recognize career volatility can help protect vulnerable workers while maintaining the overall sustainability of pension systems. Stakeholders should weigh the trade-offs between fairness, predictability, and fiscal responsibility as they consider any reform proposals, ensuring that changes align with long-term demographic trends and labor market realities.