the special scheme for public servants (both military and civil) and the non-contributory
scheme.
The general scheme is run by the Ministry of Labor and Solidarity. It is financed by
contributions paid by employees, employers and self-employed and operates on a PAYG
basis. Under this mandatory scheme, an earnings-related pension is provided for all persons
aged 65 with a minimum period of 15 years of insurance.
A new pension formula has been established under the new Social Security Framework
Law (Law 23/2002): the reference earnings is the average monthly wage over the entire
contribution period limited to 40 years (the formula applied during the period 1994-2001
has considered the average salary of the best 10 out the last 15 years); the annual accrual
rate varies from 2 to 2,3% and is regressive with reference earnings (the old flat accrual rate
of 2% is still applicable for persons with a number of contributions years equal or smaller
than 20 years). The new formula is gradually introduced between 2002 and 2017.4 The
amount of statutory pension may neither be less than 30% of the reference earnings
(minimum pension) nor greater than 80% of this reference (maximum pension for a full
career of 40 years). For low statutory pensions, a complementary payment from the non-
contributory scheme is granted in order to bring it up to the amount of minimum pension.
Under this scheme, early retirement is possible for persons aged at least 55 with a minimum
of 30 years of contributions but the amount of the pension is reduced by 4,5% for each year
of anticipation. The 2002 Law has also introduced a contributory ceiling but this reform is
still to be defined.
Mandatory occupational schemes (established through collective agreements) substitute the
general scheme in bank and telecommunications employees.
The non-contributory scheme, financed through taxes, is also run by the Ministry of Labor
and Solidarity. This scheme provides a means-tested and flat rate pension (“social
pension”) to persons aged 65 or over in a situation of economic need and not entitled to a
4 A transitional period has been established (until 2017) during which the most favorable method is applied
(the former method, the new method, or a combination of the two).