Social Security allows pensioners to continue working on their own after receiving a full pension after retiring. That is, the retiree can make 100% of his pension compatible with an economic activity, as long as it is self-employed and does not exceed an income.
Article 213.4 of the General Law of Social Security (which can be consulted in the BOE), explains that collecting the retirement pension will be compatible with carrying out self-employment as long as the total annual income does not exceed the interprofessional minimum wage (SMI), calculated annually.
This modality does not entail the loss of the pension, since it is allowed as long as Social Security is informed and the requirements are met. In fact, the Law contemplates up to three types of situations for which compatibility charges may be charged, which depend on the level of income and the contract. These are the following:
- When income is less than the SMI, 100% of the pension can be collected and those who carry out these economic activities will not be required to contribute to Social Security benefits. About this, There is even Supreme Court jurisprudence.
- If the income exceeds the SMI, the retiree may qualify for active retirement at 50%. In this, the amount of the pension will be equivalent to 50% of the amount resulting from the initial recognition.
- To collect the full pension exceeding the SMI limit, which is known as 100% active retirement, Social Security requires that the activity be carried out on one’s own account and that at least one employed worker be proven to have been hired.
Who assumes the fees in the low-income modality?
Even if the retiree does not lose his pension, his obligations change. During the time spent in this modality of income below the SMI, the law expressly stipulates that no obligation to register in the system will be generated. Those who carry out these activities for which contributions are not made will not generate new rights to Social Security benefits.
In this phase, the payment of the self-employed fee does not exist, exempting the worker from paying it to the General Treasury of Social Security. The beneficiary will continue to receive the full pension, but it is important to clarify that this exemption from Social Security contributions does not exempt from complying with the corresponding tax obligations to the Treasury for the income generated.
It is necessary for the worker to maintain rigorous control of his annual billing. Exceeding the SMI limit without transitioning to the Active Retirement model and without processing the corresponding registration would alter the legality of the situation, and could lead to claims by the INSS.
The Supreme Court clarifies it
It is common for retirees who exceed the SMI limit to try to qualify for active retirement by collecting 100%, claiming that they have workers under their care through associative figures. Now, the Supreme Court has established doctrine (such as the ruling STS 546/2022) clarifying that this procedure is not equivalent to meeting the legal requirement of having an employee directly hired.
The High Court explains that, when evaluating whether one is entitled to 100% of the pension, the company that hires cannot be an entity other than the self-employed person. For this right to exist, it is not enough to be part of a Community of Property that is the owner of the employment contracts.
If the contracting company is a Community of Property, the contract is considered signed by a different person. The Supreme Court is categorical: if the self-employed worker has not hired any employee directly, but rather the person who acts as a company and the employer is the Community of Goods, the purpose of the rule is not met and the pensioner must settle for receiving 50% of his active retirement.