The value of the average pension will deteriorate profoundly over the next 48 years, as many years as we already have of democracy, if the pension payment system does not undergo a profound reform. In 2070, the average pension could be worth only 38% of the average wage. The conclusion is contained in the book “Ambition: Doubling GDP in 20 years” by the Association for Economic and Social Development (SEDES) to which DN/Dinheiro Vivo had access. The works, coordinated by the president of the association, Álvaro Beleza, and by the president of the advisory council of the same institution, Abel Mateus, are launched today, in Porto.
At 48, a worker with an average monthly salary of 2571 euros, in 14 months, will only receive an allowance of 1005 euros, which represents only 38% of the salary he was receiving. If these projections by the working group coordinated by Maria João Louro come to fruition, there will be a substantial loss in the purchasing power of these retirees in 2070. For the moment, and in the light of the 2019 accounts, the difference is less. For example, if you earn 1285 euros per month, for 14 months, and you apply for retirement, you can count on a pension of 950 euros, which represents 72% of your salary.
From 2019 to 2070, experts point out that, despite the doubling of the average salary from 18 thousand euros to 36 thousand euros, the average pension only increases by 11% in real terms, from 13.3 thousand to 14.76 thousand euros. . It is also estimated that the retirement age will increase from 66 to 69 in 2070.
The projections take into account slow growth in the Gross Domestic Product (GDP) and a sharp worsening of the dependency ratio, which measures the ratio of people over 65 to the population between 15 and 64 years old. “In such a way that Portugal, in 2050, will have the highest dependency rate, on a par with Spain, among the countries of the European Union (EU)”, explains the work.
“Demographic change combined with a slow growth in potential GDP, around 1% per year, well below the EU average, has devastating consequences for the lack of progress of the Portuguese economy and, in particular, on the pension system of the reform”, warn the experts.
The main consequence, in Portugal, will be the sharp fall in the rate of replacement of pensions in relation to the last salaries. In Portugal, this ratio will fall from 74% in 2019 to 41% in 2070. The 33% drop is exceeded only by Spain (36%) and Latvia (35%).
The book also cites the scenario produced by the Portuguese Association of Investment, Pension and Wealth Funds (APFIPP). Taking into account relatively positive variables – such as an average annual GDP rate of 1.7%, an average unemployment rate of 8%, an annual increase in labor productivity of 1.4% and a annual inflation of 2% -, the APFIPP estimates, however, that “the deficit of retirement pensions from the contributory scheme will worsen in the years to come, leading until 2046 to a budget deficit of more than 5% of GDP “. “If to these figures we add that of social pensions, which represent a deficit of 1.6% of GDP, this means that the primary balance of the State Budget necessary, just to balance the deficit of Social Security pensions , cannot be less than 8% of GDP between 2021 and 2036”. The APFIPP warns that this “seems to be a very difficult objective to achieve”.
At the moment, the reality looks much more optimistic, given the execution of the July budget, as well as the projections of the government, the Bank of Portugal and the European Commission: GDP growth of 6.3%, tax receipts up by 5 billion euros compared to last year and a budget surplus of 432 million euros. However, we must have a long-term vision, consider the end of the expansionist policy of the European Central Bank with the rise in interest rates to fight against inflation, the effects of the war in Ukraine on the energy crisis and the increase in electricity and natural gas, as well as the €16.6 billion bazooka that Portugal received from the EU and which will not be repeated in the years to come.
Therefore, reforms are needed now to prepare for the future. “Several studies conclude that there is no financial sustainability of the old-age pension system with the current system: one of them estimates an implicit debt of 148% of GDP over the next 40 years attributable to the Caixa Geral de Aposentações and an implicit debt of 73 to 104% of the GDP of the contributory Social Security system”, writes the economist Abel Mateus. To ensure the good financial health of the public pension system, the SEDES proposes: “The ceiling pensions, i.e. the setting of a ceiling beyond which the salary is exempt from social security contributions; incentives for savings and capitalization systems; the continued indexation of retirement age to life expectancy; flexibility of the retirement decision and work after retirement”.
One of the main objectives of the work of SEDES is to present proposals aimed at doubling the GDP every 20 years, taking into account the fact that since 2000 the Portuguese economy has stagnated. This means that the Portuguese today have a standard of living equivalent to that of 20 years ago: in 2000, GDP per capita, in purchasing power parity and at 2015 prices, was 21,284 euros and, last year, it was still at 21,850 euros. per inhabitant.
The reform of the pension system is one of the engines of economic growth. But not only. The “fiscal shock”, through the reduction of taxes, combined with the reduction of public expenditure is another weapon at the service of the State to restart the machine.