Portuguese green paper meets mixed reception
A high level commission appointed by the Portuguese government has presented a green paper on social security reform which would, if implemented, create a system of mandatory funded pensions.
The green paper has had a mixed reception including outright opposition from some politicians and labour leaders with the lack of consensus un-derlined by the publication of a mi-nority report as an addendum to the majority recommendations.
The broadly left-wing minority re-port wants no public sector intervention in social security matters, while questioning the main report's financial projections and stating that the government should be in a position to finance any shortfalls, provided past debts are normalised. It also disagrees with plans for a salary cap on contributions for those under 50. This proposal would limit contributions and thus benefits to five times the national minimum wage, equal to $22,000.
In the opinion of consultants Watson Wyatt International in Portugal, the failure to achieve consensus means that the government will face some very difficult decisions ahead. The consultancy predicts that reform will not take place before 1999, although a white paper is due later this year.
The overall thrust of the majority re-port is that the current system is un-sustainable and should be reformed.
To this end, it recommends that the state should clearly relate social security contributions to social security payments and that this should be supplemented by a compulsory contributory savings system with optional in-crements at the discretion of individuals and companies. Employees in this instance could choose between management of money by the state, mu-tual societies or the private sector.
Other recommendations include the introduction of flexible retirement from the age of 62 onwards, de-pendent on 40 years of membership in a scheme, but with 68 being regarded as the normal age of retirement at which point the eligibility condition falls away.
The paper also calls for a review of private and corporate legislation to improve guarantees and portability and for a review of the relevant taxation procedures. The basis for calculating final average schemes would also change from the best ten out of the last 15 year's salary to an averaging period of 25 years, though this would be introduced gradually.