Pension certificates, commonly referred to as the state’s PPR (Reform Savings Plan), suffered a historic 15.28% decline in their profitability last year compared to 2021. Still, and for those who retired in 2022, they have a discount for the Public Capitalization Regime since 2008, the year it was founded, the portfolio’s valuation is around 25%, according to Dinheiro Vivo’s calculations based on the evolution of the unit value of the certificates.
For example, an employee who has deducted 2%, 4%, or 6% monthly—a percentage available from age 50—from his base salary since 2008, and who began receiving the old-age pension or absolute disability pension last year, was able to issue pension certificates redeemable with a 25% increase in value: the unit value of this state PPR was one euro at the beginning and last year it was 1.31772 euros. Yet this is the lowest number in the past eight years, since 2014, the last stage of the troika, when the amount was set at 1.30574 euros on 31 December.
Those who retired last year, but only started contributing to this voluntary scheme in 2009, 2010, 2011, 2012, 2013 and 2014, profitability falls to 18%, 17.7%, 21%, 11%, 8%, respectively , 24% and 0.9% . And there will already be losses for those who started contributing from 2015 and redeemed the certificates last year, because between 2015 and 2021, the unit value, calculated on December 31, was always higher than that of 2022. Negative returns of 1.9 %, if the discount started in 2015 or 3.3%, if you joined the regime in 2016, for example. The biggest declines, of 14.36%, could affect those who started contributing in 2021 and accumulated certificates last year. This is because the unit value in 2021 was much higher, namely 1.53875 euros.
But this is a very unlikely scenario, because pension certificates are closed systems that can only be redeemed when the taxpayer is about to receive the retirement pension and the legal age last year was 66 years and seven months or 60 years, in the case of early retirement. pension with a discount of 40 years.
On the other hand, they are products that are profitable only as a long-term savings product, which is intended to supplement the pension paid by the Social Security or Caixa Geral de Aposentação. In other words, the state’s PPRs are beneficial only when the employee begins to discount at a significant distance from their retirement age.
Nevertheless, the negative evolution of this fund over the past year is closely examined. Punished by bond and equity market devaluations, the Public Capitalization Regime lost EUR 5.7 million in 2022 and ended the year with a portfolio of around EUR 52 million, down 9.9% compared to the previous year, when the fund reached EUR 57.7 million. For this reason, profitability fell by 15.28%, the highest ever. Only two other years had negative records: 2011 with a devaluation of 1.5% and 2018 with a loss of 1.9%.
2022 was an atypical year in which both equities and bonds recorded clearly negative returns. For example, 2022 is notable not only for the breadth of negative returns, but also for their depth, which in the case of the equity indices (S&P500) and government debt (Bloomberg US Treasury), in dollars, reached negative values of 18.51% in equities and 12.86% in bonds, according to the analysis of the Social Security Capitalization Fund Management Institute, published on Dec. 31 last year.
The pension certificate fund is heavily exposed to government debt. Last year, 25.48% was invested in Portuguese government debt; 52.76% debt from other OECD countries; 15.70% in shares; and 6.10% in liquidity.
The report and accounts of the pension certificate fund for 2022 have not yet been released, that will not be released until the end of April, but DN / Dinheiro Vivo knows that last year the number of subscribers increased by 30.49% to 13,148, that is, its there are 3072 more subscribers compared to the 10 076 existing in 2021. Among the active subscriptions, related to those who make the discounts, 2022 ended with 222 more entries, a total of 7300, an increase of 3% compared to the 7078 booked for 2021. About 200 subscribers redeemed retirement certificates last year.
Q&A
Everything about pension certificates
What are?
Retirement certificates are a type of retirement savings plan (PPR), but are held by a state fund, in this case Social Security. It is a supplementary social security scheme that works as a savings to strengthen the pension when you retire (due to old age or absolute disability). As you work, you make additional monthly rebates that are placed in an account in your name and converted into retirement certificates that are capitalized over time. This fund is closed-ended and has no capital guarantee.
How to participate?
Anyone who works can join as long as they have a social security identification number and are covered by a mandatory social security scheme such as Social Security, Caixa Geral de Aposentação or Caixa de Previdência dos Advogados e Solicitors. Since February this year, Portuguese emigrants can also subscribe to pension certificates. Membership can be done online through the Social Security Direct website, by phone, or through a Social Security counter. And it will become active the following month.
How much is paid?
When you register, you can choose to pay 2% or 4% of your monthly salary. If you are 50 years or older, there is still the possibility to give a 6% discount. You can only change this rate on membership renewal, which happens every February. The contribution is paid monthly by direct debit on the 13th of the month to the IBAN you specified when registering. If it is not a business day, billing will occur on the next business day.
What if I stop paying?
In the months that you do not pay, 0.50 euros (value for 2022) will be debited from your settlement account, and not from your bank account, to cover the costs of regularization and maintenance of the account. If you don’t pay for three consecutive months or if you don’t have any money in your individual account, the membership will be suspended and you won’t have to pay again, and you can reactivate it in February of each year, when the renewals are in effect.
Are there tax benefits?
Yes. You can deduct 20% of the contributions paid up to 400 euros at the IRS level per taxpayer or legally separated spouse
less than 35 years. This ceiling drops to 350 euros if you are older than 35 years.
When do I start receiving?
In the month following the month in which you receive your retirement pension (or retirement pension if you are a civil servant) or retirement pension.
What are the ways to receive?
You can receive the full accrued amount or opt for a lifetime monthly income, i.e. for the rest of your life, provided that the amount of that income is equal to or greater than 2.5% of the IAS (Social Support Index) –
(€12.01 in 2023). You can also choose to pay off part of the accrued amount and receive the rest as lifelong monthly income, provided that this amount is equal to or greater than 10% of the IAS (€48.04 in 2023 ). You also have the option of converting the entire accrued amount into pension certificates for your children and/or spouse (husband or wife), but they must be registered in this scheme. The savings realized with the certificates can also be shared by the children and/or spouse in any way you want. Another hypothesis is to convert part of the value into pension certificates for the children and/or spouse and pay off the other part as a lifetime monthly income, provided the value is equal to or greater than 10 % of IAS.
What if the beneficiary dies?
If you are not yet retired, the accrued value passes to the legal heirs and according to the rules of civil succession, and you cannot leave it to other persons by will. If you receive all the lifelong monthly income and you die within the first three years, the heirs are entitled to part of the remaining amount. If the death is more than three years from the time you received the lifetime monthly income, the heirs are not entitled to any amount.
Source: DN
