PORTUGAL – Parents with fewer children will have to pay more towards their pensions, according to new reforms proposed by Portugal’s ruling Socialist Party (PS).

This proposal forms part of a government reforms package due to be approved this summer, and aimed at preventing a looming pensions crisis.

Portugal, like most European countries, has seen a sharp decline in birth rates and increasing longevity. The current average birth rate stands at 1.5 – a 35% drop over the past three decades.

Furthermore, the country’s very generous pension provision – equivalent to 80% of salary or more – could crumble within the next decade if left unchanged, according to a report in the ‘Financial Times’.

The government is proposing, amongst others, that people with less than two children will have to contribute more and people with more than two will contribute less. Meanwhile, the contribution rate of people with two children will remain unchanged.

Other reforms will also see workers either having to increase their pension contributions or work longer, say reports.

These planned changes could see many pensions cut by “at least” 10% for people retiring over the next 20 years, according to independent Portuguese economist Sara Peralta, whose analysis was outlined in the FT. Furthermore, high earners would be hardest hit.

Prime minister José Sócrates has labelled the plans the most ambitious and comprehensive to be attempted in Europe, said the FT.

“We have to act now. Every delay means bigger problems and bigger costs in the future,” Sócrates was quoted as saying.

However, the Portuguese public is largely unaware of the pensions problem.

The former governing right-of-centre Social Democrat Party (PSD) did undertake various pension reforms. In 2002 it shifted the basis of calculation for state pensions for people who retire after 2017, and in 2003 it introduced tax incentives for those investing in third-pillar savings products.

However, these were presented as ‘solutions’ rather than changes to fend off a looming pensions crisis.

Industry analysts have called the government’s proposals a policy U-turn in the sense that it has admitted that a crisis could be on the cards and that urgent changes are needed.