More incentives for those who delay retirement beyond what is set by law and raise the early retirement age could prevent such steep reductions in future pensions compared to final pay while improving the sustainability of the Social Security pension system, according to the economic survey on Portugal from the Organization for Economic Co-operation and Development (OECD), released yesterday.
Warned that “public expenditure on pensions should increase sharply over the next two decades”, the organization indicates that “the European Commission foresees a continued deterioration in the deficit of the social security system until 2038”, even though that fund registered a surplus of 4167 million euros. This is the highest value in almost ten years, largely due to social contributions that have increased under the influence of employment and wages, namely the Guaranteed Minimum Monthly Wage, which grew by 40 euros, from 665 euros in 2021 to 705 euros in 2022.
Still, looking at the long-term horizon, the scenario is not encouraging for Social Security bills and for the replacement rate of wages for pensions. At the moment, Portugal even exceeds the OECD average, with pensions worth more than 70% of the last salary, while the average of the 38 countries that make up that body is just over 40%, according to 2019 data. which will be below 70% in our country in 2035. The OECD average remains virtually unchanged.
Portugal’s better position is mainly due to “the high social contributions that will have an adverse effect on the labor market”, explains that body, warning that this financing instrument is unsustainable, taking into account the aging population and, consequently, the increase in the number of retirees. Therefore, it is necessary to find alternatives to ensure not only the financial health of Social Security, but also decent pensions.
One of the proposed solutions is to give an extra bonus to anyone who retires after the legal age of 66 years and four months. “The current set-up of the system provides little incentive for those who delay retirement beyond legal age,” the OECD said, without commenting on the proposal. At the moment, Social Security already awards a bonus for every month that exceeds the retirement age. For example, an employee who would be entitled to a benefit of EUR 800 per month and who retired at the age of 66 and eight months, ie four more than stipulated, is entitled to a bonus of 1.04 which multiplied by those four months equals 832 euros is , an increase of 32 euros on the original pension. But from the OECD’s point of view, it doesn’t seem interesting enough to encourage the Portuguese to retire later.
Another measure involves raising the minimum age for early retirement, which is currently 60, with some exceptions such as long contributing careers, fast-wearing occupations or the very long-term unemployed. “The regular retirement age is already indexed to average life expectancy, so a solution would be to apply the same indexation to the minimum early retirement age of life expectancy, while limiting the high penalties for those taking early retirement,” argues he. In practice, this indexation would raise the minimum age for early retirement.
The OECD also believes that the Portuguese government should “revisit” the measure that “enables early retirement for the long-term unemployed over the age of 62 (or 57 if they have paid long enough periods of social contributions), as it reintegration of older workers can discourage workers from entering the labor market”.
In the chapter on pensions, the OECD has already criticized the high weight of contributions at work. Now he’s returning to the subject, in more detail, to “defend a cut in employer social security contributions related to low-wage workers, to mitigate the impact of minimum wage increases,” the document says.
Currently, the Single Social Rate (TSU) for the employers is 23.75% on salaries. Employees contribute another 11%.
This is a very sensitive file, which has divided employers and trade unions at the social dialogue table. In 2017, after tough negotiations, the reduction of the TSU for companies was about to go through, as a compensation measure for the increase in the minimum wage from 530 euros to 557 euros, but eventually fell through the hands of the PCP and BE , then parliamentary partners of the PS in the designated apparatus, since the socialists did not have an absolute majority.
The medium-term income improvement agreement signed in October 2022 between the government, employers’ federations and UGT – the CGTP was not taken into account – does not provide for a reduction in social contributions. However, and given the expected evolution of the guaranteed monthly minimum remuneration, which should reach EUR 900 in 2026, with the value for this year set at EUR 760, EUR 55 more or 7.8% compared to EUR 705 in The year In the past, the question was asked by the president of the Confederation of Trade and Services (CCP), João Vieira Lopes. Last year, in an interview with Negócios and Antena 1, Vieira Lopes defended that “the reduction of TSU has been the most effective method to date of absorbing increases above productivity and inflation”. Now, in a framework of an absolute majority of the PS, the CCP leader believes that the idea has legs to walk: “At that time, there were political circumstances. It is the most direct measure, but it is necessary to to balance it”.
Salomé Pinto is a journalist for Dinheiro Vivo
Source: DN
