How Spain's worklessness crisis made it harder to retire
Worklessness swept across the country, with unemployment soaring to 26.9pc by 2013 as staff were laid off and businesses closed. But unemployment has since fallen to 11.4pc. In large part, this has been thanks to a concerted effort to get older people into work.
Britain now faces its own worklessness crisis. Unemployment has jumped to 4.6pc and more than one in five people of working age are classed as inactive, a designation that covers people who are not looking for work because they are retired, studying, too sick or for some other reason.
Much of the coverage of this worklessness crisis has focused on the high levels of young people not in education, employment or training (Neets).
Yet one area where Britain could learn a lot from Spain is the country's efforts to get older workers back into the labour force.
An estimated 280,000 people aged 50 to 64 stopped working in the UK between March 2020 and January 2023, with many too ill or taking early retirement.
The economic activity rate for those aged 55 to 59 remains lower now than it was before 2020, at 75.4pc in the first quarter of 2024 compared with 77.8pc in the last quarter of 2019.
The picture is very different in Spain, where the participation rate for 55 to 59-year-olds stood at 78pc at the start of 2024. Not only is it higher, but it is rising.
The data contrasts with the stereotype of Spaniards being lazy, enjoying siestas and taking early retirement by the beach. In fact, more older Spaniards are in work than Britons and they are retiring later.
This has helped to boost the Spanish economy, with GDP climbing by 3.2pc in 2024 and growth of 2.6pc is expected this year – figures that remain a distant dream for Britain.
How has Spain done it? And could it work here?
Madrid has taken a carrot-and-stick approach to getting more over-55s in the workforce.
The carrot is more generous unemployment benefits. Since 2019, workers aged 52 and over have been eligible for unlimited unemployment assistance, which they keep receiving for the first six months they are back in work. Allowing benefits to overlap with earnings is meant to encourage people to seek employment, rather than just sitting on the dole.
The stick is reforms to pensions that have made it more difficult to retire.
'Over the past decades, Spain has undertaken several pension reforms that are aimed at extending working life,' says Nina Ruer, a research analyst at think tank Bruegel.
'The statutory retirement age has been raised, the early retirement eligibility has been tightened and recently they linked the pension benefits to the years of [tax] contribution. All of this creates incentives for workers to stay in the workforce.'
Spanish workers retire later in life than British employees in similar roles, according to a recent paper by the IMF. Professionals in the Mediterranean country have an average retirement age of 64, compared to just above 62 in the UK.
The current retirement age in Spain stands at 66 years and eight months and is gradually being raised so that it reaches 67 by 2027.
Spain's success in getting more older people into work begs the question: could the UK do the same?
Successive British governments have tried to get more older people into work. Jeremy Hunt, the then-chancellor, said in 2023 that life for over-50s 'doesn't just have to be about going to the golf course'. However, policies to date have done little to shift the dial on participation rates.
A significant driver of the UK's drop in the participation rate for older workers since the pandemic and the earlier age of average retirement is high levels of sickness and disability among over-55s.
By comparison, Spain's population has lower rates of illness. It suggests that adopting similar reforms here may not yield exactly the same results. However, that's not to say that they couldn't help.
Still, raising the pension age would be extremely controversial. Hunt shelved plans to raise it to 68 when he was chancellor, fearing an outcry. The state pension age is currently 66 and will rise to 67 between 2026 and 2028.
Yet as Britain and most other Western countries grapple with an ageing population, governments may be left with no choice but to make it more difficult for older workers to retire early.
'[Spain] is a country that has been experiencing ageing a bit longer than other European countries ... so I think they took steps to prepare for that and to increase this labour force participation rate,' Ruer says.
Keeping older workers in the labour force has been a boon as more experienced employees are often more productive and drive business growth.
Ruer adds: 'This really does help to grow the economy just by the fact that they stay in the labour market.'
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