Portugal's public pension system may appear robust on paper, but a new report argues that this is a dangerous illusion. The study, titled "Reforming Pensions in Portugal: For a Sustainable and Fair System — A Contract Between Generations," was led by economist and professor Jorge Bravo. It warns that without significant reform, future retirees will face considerably lower incomes than today's pensioners.
The report's central finding is that the official surplus in the social security accounts is misleading. When the general regime is combined with the Caixa Geral de Aposentações (CGA), the pension fund for civil servants, the system actually runs a deficit of nearly €1.94 billion in 2025. The apparent surplus, the authors argue, is largely due to the gradual transfer of CGA contributors into the general regime and a surge in immigration that has temporarily boosted the number of contributors.
Beyond the immediate accounting, the report highlights a steady decline in the replacement rate — the proportion of a worker's final salary that their first pension payment represents. Currently around 68%, this rate is projected to fall by 10 to 12 percentage points between 2045 and 2065. That would leave many future pensioners with a significant drop in their standard of living.
Bravo said he wants "to leave better protection conditions for future generations," and the working group has put forward a series of proposals to that end. These include a state-sponsored savings account for children, a mandatory auto-enrolment supplementary scheme, and new government debt instruments tailored for retirement.
Grão a Grão: a savings account for every child
One of the more eye-catching proposals is the "Grão a Grão" (Grain by Grain) programme, which would automatically open a savings account for every child living in Portugal. The state would make a token monthly contribution, and relatives could add to it with cash gifts or child benefit payments. The funds would be locked until retirement, though they could be used as collateral for a student loan.
Bárbara Barroso, a personal finance expert and founder of MoneyLab, welcomes the idea but cautions that it must go beyond simple saving. "Obviously, the earlier you start saving, the better, because time then works in our favour," she said. However, she stressed that "we have to swap savings for investment. We have to stop being a country of savers and become a country of investors." She added: "Thinking that things are solved with this kind of low-risk saving – they are not, full stop. You cannot solve long-term saving without taking on risk and without embracing the capital markets."
José Santiago Gavino, a personal finance expert at Sixty Degrees, agrees. "It always makes sense if it follows the logic of an investment with some risk. Having a term deposit at 1% is still better than saving nothing at all… But it seems to me that the investment should be looked at more from a long-term perspective," he said. "It has been proven over the last 100 years that taking on some risk has always been much more profitable."
Auto-enrolment: overcoming inertia
The report also proposes a supplementary pension scheme with automatic enrolment and an opt-out option. When an employment contract begins, the worker, the company, and the state would contribute a combined 8% to 10% of salary. This model, common in several other European countries, is seen as a way to overcome the inertia that prevents many people from saving for retirement.
Barroso calls auto-enrolment "probably the proposal with the greatest potential to increase retirement saving." She explains: "People are automatically enrolled in a plan, they retain the freedom to leave and it helps them overcome inertia and that tendency to put off very important decisions."
Gavino notes that some Portuguese companies already offer such schemes, which can serve as a second pillar alongside the state pension. "In other words, the first pillar is our standard state pension, the second pillar is this mixed model and the third is what each person saves on their own. And this auto-enrollment pillar would be the second pillar. Several countries already have it and I think it would make sense," he said.
The European Commission has also advocated for similar systems. In November, Commissioner for Financial Services Maria Luís Albuquerque, who is Portuguese, presented a package that includes such a recommendation.
Retirement savings certificates
The working group is also proposing new government debt instruments, such as Savings Certificates or Treasury Certificates, specifically designed for retirement. These could be repaid over a period rather than as a lump sum, offering a more conservative option for those nearing retirement age.
Gavino sees merit in this approach for older workers. "It would be a more conservative investment for those already close to retirement, for those five years away from retirement, or those ten years away," he said. But for younger workers, he suggests a more aggressive strategy might be appropriate.
The report's authors stress that the goal is to secure better protection for future generations. While the proposals are not without controversy, the debate itself is a step forward. As Barroso put it: "I think it is good that we are bringing this topic into the spotlight because the sustainability of our retirement income, of pensions, is a real problem and one we need to solve before it is too late."
