Pension Country Profile: Portugal - OECD
[Pages:68]Pension Country Profile: Portugal
(Extract from the OECD Private Pensions Outlook 2008)
The OECD Private Pensions Outlook 2008 contains a set of country profiles which describe in a concise manner the design of private pension systems in individual OECD countries. This document is an extract from this publication. For further information on the Outlook, please see daf/pensions/outlook.
Contents
Each Pension Country Profile is structured as follows: ? How to Read the Country Profile This section explains how the information contained in the country profile is organised. ? Country Profile The country profile is divided into six main sections: ? Demographics and macroeconomics ? Country pension design ? Pension funds data overview ? Reference information ? Overview of private pension system by type of plan and financing vehicle ? Acronyms, Symbols and Conventional Signs ? Glossary
5. HOW TO READ THE COUNTRY PROFILES
How to Read the Country Profiles
This section provides country profiles, describing private pension arrangements in individual OECD countries. Each pension country profile is divided into six main sections:
Demographics and macroeconomics
Country pension design
Pension funds data overview
Private pension system's key characteristics
Reference information
Overview of private pension system by type of plan and financing vehicle
The figure below shows how the first three sections are organised on the first page of each country profile.
5. AUSTRALIA
Australia
1
Demographics and macroeconomics
Nominal GDP (AUD bn) GDP per capita (USD) Population (000s) Labour force (000s) Employment rate Population over 65 (%) Dependency ratio1
1 044.5 45 003.6 21 017.0 11 000.4
95.7 13.1 25.1
Note: Data from 2007 or latest available year. 1. Ratio of over 65-year-olds to the labour force.
Source: OECD, various sources.
Potential average pension
2 benefit As a percentage of final earnings
Mandatory occupational pension ? Superannuation funds Public pension ? Means-tested pension 60
40
Country pension design
3 Structure of private pension system
Mandatory/Quasi-mandatory, occupational
Occupational trustee managed superannuation fund: corporate Occupational trustee managed superannuation fund: industry Public sector occupational pension plans, often compulsory for public sector employees
Mandatory/Quasi-mandatory, personal
Trustee managed public offer superannuation fund: retail funds Trustee managed superannuation fund: small APRA funds Trustee managed superannuation fund: self-managed superannuation fund (SMSFs) Trustee managed superannuation fund: approved deposit fund
20
0 Note: Additional pension income may come from other sources such as voluntary occupational pension, personal pension, general savings or investments, etc. Source: OECD estimates.
Voluntary, personal Retirement savings accounts (RSAs): capital guaranteed individual savings account or policy
Source: OECD Global Pension Statistics.
4 Pension funds data overview
Total investments (AUD bn) Total investments as a % of GDP Total contributions as a % of GDP Total benefits as a % of GDP Total number of funds
Source: OECD Global Pension Statistics.
2003
537.8 68.9 6.849 4.3 264 614
2004
602.7 71.6 7.2 3.6 290 917
2005
720.6 80.4 7.8 3.7 306 553
2006
874.4 90.4 8.8 3.9
324 789
2007
1 100.4 105.4 11.7 3.9
366 567
1 2
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Demographics and macroeconomics
The first section presents a selection of key
demographics and macroeconomics indicators that provide a sense of the size of the country and its economy. GDP figures are from the OECD Reference
Series database. Population figures are from the OECD Population and Labour Force database.
Country pension design
This section is split into two parts:
Potential average pension benefit
This figure displays a broad estimate of the total pension income which an average-earning individual may receive from various sources (state, mandatory, and voluntary occupational pensions) after a full working lifetime. It is expressed as a percentage of the earnings the pensioner had just before retirement. These figures draw and expand on a microeconomic approach used in the publication Pensions at a Glance, looking at future individual pension entitlements under 2004 parameters and rules.
The pension incomes projected here, however, should be considered only as broad indications of what may happen, as they are conditional on a number of assumptions. It is assumed that individuals are covered by public pension plans throughout their careers. For the countries where occupational pension plans are common, averageearning individuals are assumed to be covered throughout their careers by occupational pension plans that are typical of market practice in that country. In countries where private pension accounts are compulsory, they are assumed to have participated in the compulsory system throughout their careers. Those with shorter, or periodically interrupted, careers should expect lower benefits than those which are set out in this figure.
A public pension can be an earnings-related pension (a pension computed by reference to a rate of emoluments, whether actual emoluments or not and whether final or average emoluments), a flat rate pension (a pension payable at a rate fixed otherwise than by reference to a rate of emoluments or to the rate of another pension), a minimum pension (the minimum level of pension benefits the plan pays out in all circumstances), a basic state pension (a nonearnings related pension paid by the State to
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5. HOW TO READ THE COUNTRY PROFILES
individuals with a minimum number of service years), or a means-tested pension (pension granted to a person after examination of his/her financial state).
Data cover public pensions and other mandatory or quasi-mandatory private pension plans. Voluntary plans are also included if they cover at least 30% of the working population. Additional pension income may come from other sources, such as individual savings, but these are not included in the data.
For five countries, several projections are presented as private pension systems are in a particular state of change.
Structure of private pension systems
The second part displays a bulleted list summarising the structure of private pension systems according to the pension plans currently in place in the country.
Pension funds data overview
The third section presents selected pension
fund indicators from 2003 to 2007 from the OECD Global Pension Statistics project (daf/ pensions/gps). For further data and analysis, readers can refer to Chapter 2 of this publication.
Private pension system's key characteristics
The information provided in this section covers eight private pension system key characteristics:
Overview
Coverage
Typical plan design
Contributions
Benefits
Fees
Taxation
Market information
Depending on data availability, these characteristics are developed for each existing category of pension plan (mandatory vs. voluntary pension plan, occupational vs. personal pension plan). Information provided in this section refers to December 2007 or to the latest available year.
Reference information
This section includes references to key legislation reforms, provides the name of regulatory and supervisory authorities and displays official statistical references and sources on private pensions.
Overview of private pension systems by type of plan and financing vehicle
This last section gives a detailed description of the various private pension plans found in each country as well as the statistical data coverage of the OECD Global Pension Statistics.
The following figure gives an example of such an overview. The first two columns provide the name and the description of each pension plan. Pension plans included in the OECD GPS database are marked with a tick in the next column, excluding OECD estimates. Under the column headings "Type of plan" and "Financing vehicle" are given the correspondence of each pension plan with the OECD Classification by funding vehicle and by type (see OECD (2005), Private Pensions: OECD Classification and Glossary, OECD, Paris).
Overview of private pension system by type of plan and financing vehicle
Type of plan
Included in
OECD GPS database
Mandatory/ Voluntary Quasi-
Occupational
mandatory
Personal
Pension fund
Financing vehicle
Book reserve
Pension Banks or insurance investment contract companies
Occupational trustee managed superannuation fund: corporate
Occupational trustee managed superannuation fund: industry
Trustee managed public offer superannuation fund: retail funds
Trustee managed superannuation fund: small APRA funds
Retirement savings accounts (RSAs): capital guaranteed individual savings account or policy
Sponsored by a single nongovernment employer, or group of employers. Either defined benefit, defined contribution, or hybrid. Employer contributions may comprise or exceed the mandatory 9% contribution. Benefits can be pension, lump sums, or combinations thereof. Trustees are independent or comprise of equal numbers of employer and employee representatives.
Established under an agreement between the parties to an industrial award. Multi-employer sponsored. Defined contribution. Employer contributions comprise the mandatory 9% contribution. Benefits generally lump-sum or allocated (account-based) pensions. Trustee comprised of equal numbers of employer and employee representatives.
Pooled superannuation products sold commercially and competitively through intermediaries, including master trusts (private pension investments) and personal superannuation products. Trustee must meet capital requirements. Often sponsored by financial institutions such as life insurance companies or banks.
Superannuation funds, regulated by the prudential regulator, that have less than five members and are operated by an independent trustee that meets capital requirements. Can pay lump-sum or allocated (account based) pension benefits.
Retirement savings accounts (RSAs): these are non-trust-based superannuation accounts that are offered directly off the balance sheets of either life companies or Approved Deposit Taking Institutions (banks, credit unions, friendly societies). RSAs are governed by separate legislation (the Retirement Savings Account Act 1997). The liabilities represented by these accounts are liabilities of the institutions concerned.
Source: OECD Global Pension Statistics.
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5. PORTUGAL
Portugal
Demographics and macroeconomics
Nominal GDP (EUR bn) GDP per capita (USD) Population (000s) Labour force (000s) Employment rate Population over 65 (%) Dependency ratio1
162.8 20 998.5 10 604.4
5 618.0 92.0 17.3 32.7
Note: Data from 2007 or latest available year. 1. Ratio of over 65-year-olds to the labour force.
Source: OECD, various sources.
Potential average pension benefit
As a percentage of final earnings Public pension ? Minimum pension ? Earnings-related pension ? Flat rate pension
60
40
20
Country pension design
Structure of private pension system
Voluntary, occupational Fundos de Pens?es Fechados (closed pension funds) Fundos de Pens?es Abertos (open pension funds) Pension insurance contract: collective insurance
Voluntary, personal Fundos de Pens?es Abertos (open pension funds) Personal retirement saving funds: Fundos Poupan?a Reforma (PPR) and Fundos
Poupan?a Ac??es (PPA) Pension insurance retirement contracts
Source: OECD Global Pension Statistics.
0
Note: Additional pension income may come from other sources such as voluntary occupational pension, personal pension, general savings or investments, etc. Source: OECD estimates.
Total investments (EUR bn) Total investments as a % of GDP Total contributions as a % of GDP Total benefits as a % of GDP Total number of funds
Source: OECD Global Pension Statistics.
Pension funds data overview
2003
16.3 11.8 1.0 0.7 240
2004
15.2 10.5 1.2 0.7 221
2005
19.0 12.7
2.3 0.7 223
2006
21.2 13.6
1.1 0.7 227
2007
22.4 13.7
0.6 0.7 224
1 2
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5. PORTUGAL
Private pension system's key characteristics
Occupational voluntary Overview
The occupational pension market in Portugal is relatively small, mostly as a result of the generous public pension system. However, recent reforms to the public pension system will significantly reduce benefits, so occupational pensions are expected to grow in importance.
Occupational pension provision is provided by open and closed funds and through direct insurance. Closed pension funds may be set up at the initiative of a company, groups of companies, groups of social or professional associations, or by agreement between employers' associations and trade unions. There are no public employees funded pension arrangements.
Typical plan design Pension plans can be defined benefit, defined contribution, or hybrid in nature. The
number of defined contribution plans already matches the number of existing defined benefit plans, which reflects the trend towards defined contribution plans. However, 98.5% of the assets still belong to defined benefit plans.
Typical defined benefit plans are based on final earnings, while typical accrual rates would be 2% per year for plans that are integrated with social security, and 0.5% per year for non-integrated plans. Benefits generally accrue over 40 years and are payable when members become entitled to public pension benefits.
Employer contributions to defined contribution plans are usually around 3% of salary. Employee contributions depend on plan rules, but in most cases employees do not contribute. Benefits are usually paid out as regular pensions, but in some circumstances one-third of the present value of benefits can be paid out as a lump sum. The normal retirement age is 65 in the private sector and 60 for public employees. The normal retirement age for public employees will increase by 0.5 every year until 2015 to converge with the private sector.
Coverage In order for contributions (to the pension fund) to be tax qualified (favourable tax
treatment rules), pension plans must cover all sponsor employees with a permanent contract after the probationary period of 6 months. Employees with short-term contracts of up to 2 years may be excluded from coverage.
Banks and other credit institutions under the "Banking collective labour agreement" need to have their pension plan financed through a pension fund. The collective labour agreement sets out the pension benefits for the employees of the banking sector, which are substitutive to the Public Social Security system. In other words, these particular pension funds are part of the public pension system.
In 2007 around 3.8% of the labour force was covered by occupational pensions.
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5. PORTUGAL
Taxation Employees may deduct from their taxable income 20% of their contributions to an
occupational pension scheme up to an annual ceiling (EUR 400 per year for persons aged less than 35 years, EUR 350 per year for persons aged between 35 and 50 years, and EUR 300 per year for persons aged over 50 years).
In order for employer contributions to receive favourable tax treatment (i.e. EET tax treatment), the plan must comply, inter alia, with the following requirements: Cover all permanent employees; Calculate benefits objectively and equally for all members; Pay benefits from the social security retirement age.
In plans that comply with these requirements and that do not provide for vesting, employer contributions are tax-deductible up to a limit of 15% of the salary (25% if the employee is not covered by the social security scheme). Employer contributions in plans not providing vesting are not taxable as fringe benefits for employees. Employer contributions in plans providing vesting are taxable as fringe benefits for employees if they exceed 15% of salary (25% if the employee is not covered by the social security scheme).
Personal voluntary Personal pension saving arrangements take one of the following forms:
Fundos de pens?es abertos (individual acquisition of open pension fund units) ; Pension insurance retirement contracts: collective insurance contracts in which the
individuals make contributions to the retirement vehicle in exchange for which they are entitled to the corresponding benefits receivable upon achieving the retirement age; Personal retirement saving funs: Fundos de Poupan?a Reforma (PPR), which can be financed by three different financing vehicles (pension funds, insurance contracts or investment funds), and Fundos Poupan?a Ac??es (PPA), which can be financed by two financing vehicles (investment funds and pension funds).
Market information Occupational voluntary
On 31 December 2007 there were 199 pension funds on the market with a total of 302 209 members. Total assets in the occupational system amounted to EUR 21.8 billion (USD 29.8 billion).
Personal voluntary On 31 December 2007 there were 55 personal retirement saving funds on the market
with a total of 441 183 members. Total assets in the personal system amounted to EUR 3.5 billion (USD 4.8 billion).
Reference information
Key legislation and regulation CMVM regulation No. 8/2007 defines, inter alia, rules on marketing of open pension
funds with individual adhesions.
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5. PORTUGAL
Decree-Law 357-A/2007 amends Decree-Law 12/2006, in particular, as a result of the legal transfer of supervisory and regulatory competences (from the Instituto de Seguros de Portugal to Comiss?o do Mercado de Valores Mobili?rios) covering some aspects of conduct of business rules (distribution and marketing) related, inter alia, to individual adhesions to open pension funds.
ISP regulation No. 9/2007 governs investment policy, as well as composition and evaluation of assets.
Law 4/2007 approves the basis of the social security system and defines general principles for complementary occupational pension plans. Further to this Law, DecreeLaw 187/2007 defines and regulates the legal framework applicable to protection due to old age or invalidity under the general social security regime.
Framework Pension Law (Decree-Law 12/2006), passed in 2006. This Decree-Law introduces a general revision of the legal regime applicable to pension funds, transposing EU Directive 2003/41/EC, of the European Parliament and of the Council, of 3 June, on the activities and supervision of institutions for occupational retirement provision into the Portuguese legal framework. Decree-Law 180/2007 amends Decree-Law 12/2006, in particular, as far as the monitoring committee of the pensions scheme and information to members and beneficiaries are concerned.
The Individual Income Tax Code and Corporate Tax Code regulate the tax treatment of contributions, investment income, and benefits.
The Tax Benefits Act regulates issues related to tax deductions and exemptions. Decree-Law 94-B/98 governs the establishment and supervision of insurance companies and sets out rules for the protection of rights.
Key regulatory and supervisory authorities The Instituto de Seguros de Portugal, or Portuguese Insurance Institute: regulates the
occupational pension system, except for the regulatory competences that were transferred to the Comissa? do Mercado de Valores Mobili?rios, isp.pt.
The Comiss?o do Mercado de Valores Mobili?rios (CMVM), or Portuguese Securities Market Commission: regulates some aspects of conduct of business rules (distribution and marketing) related, inter alia, to individual adhesions to open pension funds, cmvm.pt/.
Key official statistical references and sources on private pensions Instituto de Seguros de Portugal, or Portuguese Insurance Institute, isp.pt. OECD, Global Pension Statistics Project, daf/pensions/gps.
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5. PORTUGAL
Overview of private pension system by type of plan and financing vehicle
Type of plan
Included in
OECD GPS
Mandatory/
database Voluntary Quasi-
mandatory
Occupational
Personal
Pension fund
Financing vehicle Pension Banks or
Book insurance investment reserve contract companies
Fundos de
A pension fund is held to be a closed fund
Pens?es (closed when it relates to only one sponsor or, if there
pension funds) are a number of sponsors, when there is a
business, associative, professional or social
connection between them and their approval
is needed for new sponsors to join the fund.
Closed pension funds may be set up at the
initiative of a company, groups of companies,
groups of social or professional associations,
or by agreement between employers'
associations and trade unions. There are no
government workers' funded pension
arrangements.
Fundos de
A pension fund is held to be an open fund
Pens?es (open when no bound between those joining to the
pension funds) fund is necessary and membership of the fund
is solely dependent on acceptance by the
pension fund manager. Open pension funds
may be set up at the initiative of any entity
entitled to manage pension funds. Collective
membership of an open pension fund arises
when sponsors wishing to join the fund
initially acquire units.
Personal retirement saving funds: Fundos Poupan?a Reforma (PPR), Poupan?a Educa??o (PPE), Fundos Poupan?a Ac??es (PPA)
Retirement saving funds (third pillar) established as pension funds.
Personal
Retirement saving funds (third pillar)
retirement saving established as collective investment schemes
funds: PPR, PPE, managed by investment companies.
PPA
Pension insurance Collective insurance contract that specifies
contract: collective pension plan contributions to an insurance
insurance
undertaking in exchange for which pension
plan benefits will be paid when members
reach a specific retirement age, or on early exit
of members from the plan. Included in
insurance statistics.
Pension insurance Individual insurance contract that specifies
contract: PPR, PPE pension plan contributions to an insurance
undertaking, in exchange for which pension
plan benefits will be paid when the members
reach a specific retirement age, or on early exit
of members from the plan. Included in
insurance statistics.
Source: OECD Global Pension Statistics.
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