PORTUGAL - The Portuguese government has agreed to transfer €6bn from the pension funds of four of country’s largest banks to the state as part of a plan to cut the deficit to 5.9% of GDP.

The government will use the assets - which will be transferred between the end of this year and 2012 - to meet its budget-deficit target and pay part of the state’s debts currently held by banks, according to Helder Rosalino, secretary of state for public administration.

Maria João Louro, business leader for retirement, risk and finance at Mercer, said the government believes the “exceptional measure” is the only means of avoiding tax hikes while meeting its public deficit target.

The measure aims to transfer the pension funds’ liabilities - specifically, liabilities related with pensions in payment - to the Social Security regime.

Ana Marta Vasa, partner at Towers Watson in Lisbon, told IPE the banks had an interest in transferring liabilities because they wanted to reduce the volatility on their balance sheets stemming from defined benefit plans. 

João Louro added: “One of the main consequences for the four banks involved in this process will be the significant reduction of their pension funds’ assets by 50%.

“But the obligation to guarantee future pension increases, as well as post-retirement benefits and medical post-retirement expenses, will still be incurred by the banks’ pension funds.”

However, because this particular transfer only relates to pensions in payment without future increases, the current funding level of the first-pillar system is unlikely to be affected, according to João Louro.

“To control the current and future resources of the first pillar, it will be necessary to implement an effective governance policy and a continuous monitoring process on cash flows (due to the fact we are on pay-as-you-go system),” she said.

Last December, Portugal Telecom agreed a deal to transfer almost €3bn in pension assets to the country’s Treasury.