PORTUGAL - The Portuguese government has set out its controversial agenda to overhaul the first pillar pension system with measures designed to boost funding levels and reduce benefit payments.
It is widely believed the Portuguese pension system is one of the most generous in the EU but with shifting demographics due to improved life expectancy and fewer paying for the current wave of pensioners, and an ill-advanced occupational and third pillar set-up, some experts have claimed the current system could collapse within 15 years.
In response, the government has laid down a list of key proposals designed to reduce benefits levels and spark public saving which if successful will be pushed through parliament this year and implemented by 2007.
The main reforms include dramatically reducing the transition period between the shift from a final salary first pillar pension to a career average system from 2017 to as early as 2010; substantially increasing the penalty for people who retire before the state age of 65 from 4.5% per annum of total benefits to 6%; creating a cap on the benefits received on social security and compelling workers with less than two children to contribute more to the pension system.
However, Bernie Thomas, senior consultant at Watson Wyatt claimed the reforms would not be enough to stave off the gravity of the situation.
He said: “The government needs to do something more significant like consider adjustments to the benefits formulas or contribution levels. While it’s a step in the right direction, it’s perhaps politically as far as it can go at this point in time.”
The Portuguese government has a majority in parliament and it is expected the proposals will pass with little trouble. “There is a reluctant acceptance of the reform from the industry,” Thomas added.
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