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Pension reforms in Portugal - background summary

Characteristics of the Portuguese pension system

The Portuguese pension system pays old-age pensions under two different schemes: a contributory scheme (‘Sistema previdencial’) and a non-contributory scheme (‘Sistema de proteção social de cidadania’).

  • The assignment of a pension under the non-contributory scheme depends on the recognition of an economic deficit and its amount is established by the State (today it is €202.34, plus €17.61 if the person is less than 70 years old, or plus €35.20 if the person is more than 70 years old).
  • The contributory system is a ‘pay-as-you-go’ scheme and self-financing. The system’s economic revenue in a certain period finances its expenses in that same period. This financing model may cause sustainability problems when the birth rate goes down, unemployment goes up and the average life expectancy increases.
    • Civil servants have their own social security scheme (CGA) but this has moved closer to the general social security system in a process of convergence.

Pension reform in Portugal

        Pension calculation basis

  • Decree Law 329/93 dictated that an old-age pension was to be calculated on the basis of the average of the best 10 of the last 15 years of insurance payments.In 2002, Decree-Law 35/2002 determined that the calculation of old-age pensions was to be based on the total insurance payments (limited to 40 years). However, this new law had a transitory legal regime that resulted (in the majority of cases) in the maintenance of the old calculation formula.In 2007, Decree-Law 187/2007 approved the present statutory pension scheme with new transitory rules.

Sustainability factor

  • Decree-Law 187/2007 also introduced a sustainability factor in the pension calculation formula, in order to adjust the amount of the pension to the increment in average life expectancy. Currently, with the changes in the age of access to old-age pension, the sustainability factor is only applied to early retirement pensions. 

Age

  • With Decree-Law 167/2013, the age for accessing an old-age pension (then 65) changed with average life expectancy. Therefore, in 2014 and 2015 it was set at 66 years, in 2016 at 66 years and 2 months and in 2017 it will be 66 years and 3 months.

Early retirement

  • According to Decree-Law 187/2007, those who, at 55 years of age, have paid pension contributions for at least 30 years, may apply for their pension before having reached the required retirement age. This implies a reduction of 0.5 % for each month in advance, though this penalisation can be reduced in case of a long insurance record. However, Decree Law 85-A/2012 suspended access to early retirement during the economic and financial assistance programme in Portugal. In 2015 the suspension ended but Decree Law 8/2015 established transitory rules for accessing early retirement: 1) 60 years old; 2) 40 years of pension contributions. These transitory rules were maintained by Decree Law 10/2016.
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