Social Security in Portugal: An Update of Long-Term Projections

Abstract

At the request of the Laeken European Council, Portugal has prepared a National Strategy Report on its pension system, in view of objectives like adequacy, financial sustainability, and modernisation. This paper documents the official longterm projections of social security revenues and expenditures therein, using PROST, an actuarial model developed by the World Bank. Taking on board the pension reform effective Jan-1-2002 (Law 17/2000), simulation results suggest that, in light of the expected ageing of the population from 2000 to 2075, overall social security expenditure as a percentage of GDP is projected to grow by 3.2 pp, from 12.9 to 16.1%. Public pensions paid to former private-sector workers increase by 1.7 pp, while those paid to former civil servants rise by 1.4 pp, a larger relative increase given the latter's reduced size. As a result, the reserve fund is expected to go dry in 2029, three years earlier than if no pension reform had taken place. The 2002 pension reform entails changes to the benefit formula with offsetting financial effects: the reference wage is lowered by eventually being calculated using the whole contribution history, and the accrual rate is, in effect, increased.