Publication of a report canvassing a dramatic reform of the Portuguese security system was imminent at time of going to press.

A government commission set up 18 months ago was due to publish a green paper envisaging a much larger role for the private sector leading to predictions of a period of dramatic growth for Portuguese pension funds.

With much of the report having leaked to the Portuguese newspapers, one expected proposal was the introduction of a salary limit for which social security benefits apply. Al-though the salary level at which it would apply was not known, consultants Watson Wyatt in Lisbon estimated that it would exclude middle management and upwards.

There may also be a regressive ac-crual scale which should see people on low salaries receive more benefit with less for those who earn more.

Flexible retirement ages may also be introduced with the extension of the standard retirement age from 65 to 68 although the commission is also ex-pected to suggest that people can re-tire earlier than 65 but with penalties.

The paper was also expected to canvass a reform which would in effect change state benefits from a final salary to career average plans. The commission is expected to publish a white paper on the issue later this year.

p A Watson Wyatt performance survey of Portuguese pension funds show a median performance of 12.3% for 1996 up from the past two years, but not recording the same returns as the beginning of the decade. The inflation adjusted return was 9.0% beating the five year average of 8.2%.

The survey first conducted by Wyatt in 1994, now covers 90% of the market with 169 funds, 20 managers and assets of US$ 9.6 bn.

The salient feature of the changing investment climate has been the drop in inflation from 13.4%pa at the start of the decade to 3.3% pa now.

The stock market produced a median return for funds of 39.4% in 1996 while the declining interest rate climate meant that fixed rate state bonds produced a return of 16.6% with a 7.9% return on liquid assets.

Foreign investments produced me-dian bond returns of 10.8% and 9.7% for equity. Property investments produced a return of 9%.

The survey shows little overall movement in asset allocation strategy. Although a greater interest in foreign assets especially equity was noted such assets were still less than 5% of portfolios. However the consultancy expects this picture to change.

Commenting on the survey, Bernie Thomas of Watson Wyatt in Lisbon said that there had been only a small move towards equities this year. If this happens one would be looking at much lower bond returns and a greater exposure to equities domestically and internationally. Certainly we could see holdings of 30 or 40% in the next few years." John Lappin"