PORTUGAL – Defined contribution occupational pension schemes are likely to receive a boost through the reintroduction of tax incentives on employee contributions next year.
A fiscal incentive of up to 25% of the total employee contribution up to a maximum of €500 was scrapped at the end of 2004. Fiscal strain is a major issue in Portugal at present with the budget deficit at 6.2% - more than double to 3% limit requited for membership of the euro.
However another issue weighing on the government finances is the cost of the state pensions system.
“there isn’t enough to fund the state pension system,” said Martin Guedes, portfolio manager at BPI Asset Management.
“Furthermore, the State Pension Reserve Fund only has enough to fund around eight months of pensions payments. So the government is thinking of bringing back the fiscal stimulus to increase the savings rate. This will be a great boost for the industry.”
Guedes stressed that the measure has added importance because the working population is not aware that the replacement ratio is decreasing.
He noted: “We hope that the stimulus will be reintroduced next year; the government is expected to make an announcement shortly.”
APFIPP, the Portuguese Association of Pension Funds and Investment Managers, has lobbied to the reintroduction of the fiscal stimulus. However, and association source was keen to temper enthusiasm about the possible reintroduction of the tax break.
“In times of difficulty people prefer to put their money where they can see it,” he said.