Portugal’s occupational pension funds returned 5.1% for the 12 months to 31 December 2025, compared with 6.3% for calendar 2024.
João Lopes, retirement analyst at WTW, said that 2025 was a strong year for European equities, which had lagged US equities in most recent years.
“This benefited those pension funds that still have a strong bias towards European equities,” he observed.
Performance figures were submitted to WTW by about 75% of the pension funds in Portugal, the overwhelming majority of them occupational funds.
Lopes pointed out that both 2024 and 2025 had been positive for diversified portfolios, adding: “Although equity allocations are modest, the high returns were sufficient to push total returns to very healthy numbers in both years.”
Meanwhile, the last quarter of 2025 brought average gains of 1.5% for Portuguese funds, in contrast with an average return of 1.8% for Q3 2025 and a 4.1% return for the 12 months to that date.
“While global equities returned 7.2% for Q3 2025, they only returned 3.2% for Q4,” said Lopes. “However, bond returns for both quarters were at their ‘normal’ low levels.”
Annualised gains for the three years to end-2025 were 6.7%, and 2.3% for the five years to that date.
There has been little change in traditional asset allocations over recent years.
At end-December 2025, Portuguese pension fund portfolios were still heavily dominated by debt, which made up 63% of assets (including direct and indirect holdings), according to data from regulator ASF and the Portuguese Association of Investment Funds, Pension Funds and Asset Management (APFIPP).
Equities made up 20%, and real estate 11%, of portfolios at that date.
“There are signs that equity allocations will continue to increase, but this will be gradual,” said Lopes.
“A number of pension fund providers recently created pooled pension funds open to corporates and individuals with equity allocations close to 100%. New corporate pension plans typically offer more aggressive investment options, while established plans are slowly updating their investment profiles, recognising a preference by younger generations for high return/risk investment options.”
He added that even older employees are acquiring an increasingly longer time horizon, and typically will choose to keep their assets invested throughout retirement.
Meanwhile, although the current environment – with interest rates still raised — continues to provide opportunities for defined benefit funds to reduce asset/liability duration mismatches and lock in accumulated surpluses, Lopes highlighted the challenges facing defined contribution funds in achieving better retirement outcomes for employees.
“Companies have tight budgets, so increasing company contributions is not always an option, despite a low average level of contributions,” he noted.
“The government needs to do more to clarify the (un)sustainability of state pensions, and encourage companies to contribute more. Auto-enrolment, mandatory corporate plans and improved tax incentives are needed.”
He also said companies need to invest more time in communications to employees, so they understand the benefits of saving for retirement, and of providing the right investment vehicles for their pension plans.
