GDP

This section discusses issues related to the equity and efficiency of the public

pension system from a macro-fiscal perspective. Portugal currently spends about

14½ percent of GDP in all of its public pension programs.32 Among the advanced economies,

this is one of the largest shares of GDP devoted to pension spending. A key question this

section tries to address is whether Portugal could achieve better outcomes in terms of equity

(e.g., addressing poverty among the elderly) and efficiency (e.g., promoting participation in

the formal employment even at older ages) at lower levels of public spending.

40. The public pension system has complex administrative and benefit structures.

The system has been unified under the General Contributory Regime (GCR) for all new

entrants to the labor force after 2006. Still, for those who entered the labor force prior to

2006, including the majority of the workforce and nearly all pensioners, the system remains

fragmented. Some 4 million workers and 3 million pensioners are covered by GCR, and 0.5

million workers and 0.6 million retirees are covered by Caixa Geral de Aposentações (CGA,

the scheme for public employees). These systems provide old-age, disability, and survivors’

benefits. In addition, the retirement income system includes complements (minimum

pensions) for those who qualify for low pensions, and non-contributory benefits (meanstested

social pensions) for those who do not meet the minimum contribution requirements.

41. Public spending on pensions increased rapidly since 2000. Over 2000–2012,

public spending on pensions (as a share of GDP) increased from 9 percent to 14½ percent

(Figure 4.1). Most of this increase happened already before the crisis. Population ageing only

explains about 30 percent (1½ percentage points of GDP) of the increase in spending during

the overall period. The remainder is explained by other factors:

 About 45 percent (2½ percentage points of GDP) is due to increases in average

pensions relative to GDP per capita. For example, over 2000–2012, average annual

old-age pensions under the GCR increased by 75 percent (from €3,130 in 2000 to

€5,515 in 2012) compared to an increase in GDP per worker of 40 percent over the

same period.33 Part of this increase reflects efforts to protect the most vulnerable

32 As defined here, the term “pensions” includes both contributory and noncontributory benefits for old age,

disability, and survivors.

33 The ongoing pension system maturation might also have put pressure on average benefits in the GCR. For

example, new GCR retirees have longer contribution histories—the average number of contribution years taken

into account for old-age pension calculations increased from 26 years in 2002 to nearly 30 years in 2010.

However, this likely played only a small role, since most GCR pensioners receive minimum pensions and the