Portugal's third pillar system has come under fire from the pension industry, with insiders questioning the need for a publicly-funded third pillar in competition with private options.
Pedro Silveira Assis, director of Schroders Portugal, told Global Pensions: "If you add up all the factors facing retirement security, such as demographic change and longevity, people will need something that has a higher added value, with higher returns.
"This scheme is managed the same way as the main reserve pension fund, with a conservative asset allocation."
So far, industry estimates reveal only about 1,000 people have signed up to the public system and the government has done little to publicise or drive membership.
Frederico Machado Jorge, managing consultant, Watson Wyatt Portugal, attacked the scheme, saying the overall Portuguese retirement system was becoming more imbalanced and this scheme was poorly thought out.
"The big criticism is why the public sector should create a competitor to the private third pillar. The system has no investment options, money cannot be surrendered for any reason other than retirement or death and it has no track record."
A spokesperson for SGF, an independent pension manger, agreed the system was inadequate: "We don't know why it was set up. The retirement industry didn't like the attitude from the government and there was some controversy. We really didn't understand why they did it."
Assis added: "The way to solve the retirement problem is by alerting people at the start of their careers that they cannot expect someone else to pay for their pension. This scheme does not solve the problem. The solution is not to invest in something that has a low return."
The Institute of Social Security, which administers the system, declined to comment.