Portugal’s pension system ‘unsustainable’: extra public funding will be needed

“If Portugal wants to maintain the level of generosity of its social State in the future, there will need to be substantial changes”.

This is the bottom line, given by ECO online, of a report into budgetary risks and the sustainability of public finances – published by the council of public finances (CFP) and making no reference to the media exposé some years ago which suggested pensions would actually ‘run out’ by 2030 (click here)

This week’s report uses data from the European Commission’s 2021 ‘Ageing Report’, which shows this is a transversal problem which will increase over the next decades.

People are (still) living longer, no matter the challenges posed by the pandemic – and the CFP “has no doubts that in the medium and long-term additional efforts in terms of public finances will be needed to maintain the social benefits conceded at the moment”, says ECO.

The initial description of “the generosity of the social State” is, in many cases, gilding the lily: hundreds of thousands of pensioners live on absolutely paltry pensions.

Tabloid Correio da Manhã puts the situation into simple language, explaining that in 50 years time, the way things are going, pensioners “will have to live on less than half the income they had when they left work”.

What can be done? The CFP suggests ‘betting on economic growth’ is one avenue. This gets snarled up though when one factors in ‘technological progress’ (meaning the replacement of people by technology) and ‘deepening globalisation’ (meaning the relocation of companies to countries with low wages…)

“The pay-as-you-go pension systems, like the one operating in Portugal, need to be prepared to accommodate the increasing atypical nature of work and contributory gaps within the framework of this new technological reality”, CFP adds.

To conclude its text ECO adds a single (eminently depressing) sentence: “It should also be noted that climate change is also a threat to public finances”.