Portugal's pension system recorded a deficit of 1.9 billion euros in 2025, according to a report presented on Tuesday by the working group for Social Security reform.
The findings contradict what the expert panel described as a budget illusion of a 6.7 billion euro surplus.
The working group explained that previous surplus calculations excluded early pension expenses funded by taxes as well as Caixa Geral de Aposentações. The panel stated that analyzing the two pension regimes separately produced an incorrect and incomplete financial picture.
Caixa Geral de Aposentações is Portugal's state employee pension fund, managing retirement benefits for civil servants and public sector workers. An audit published in January by the Court of Auditors, Portugal's supreme audit institution, had previously highlighted similar structural shortfalls.
Projections for state pension funds
Economist Jorge Bravo coordinated the 607-page document, which was commissioned by the Portuguese government early last year. Bravo had also collaborated on the January audit conducted by the Court of Auditors.
The report warned that Caixa Geral de Aposentações, which has accepted no new subscribers since the end of 2025, will lose all remaining active contributors by 2055. Despite having no contributors after 2055, the fund will continue to generate pension expenditure until 2111.
The expert panel also detailed a steady drop in retirement income for future pensioners. The replacement rate, which measures the percentage of a worker's last salary converted into their initial pension, is projected to fall from the current 68.3 percent to 60.1 percent in 2045.
By 2065, the replacement rate is expected to drop further to 58 percent.
Proposed pension reforms and government response
To address the growing deficit, the working group proposed structural changes to replace the current pension model with a public individual accounts system. The proposed model would record all worker contributions made throughout their careers.
Under this system, workers would receive an annual statement detailing their accumulated capital. Pension calculations would be simplified by factoring in life expectancy, the eligible retirement age, and statutory adjustment rules.
Bravo said the current system fails to guarantee intergenerational equity and warned that debt is being transferred to future generations. He urged the government to implement urgent structural reform.
However, the Ministry of Labour ruled out structural reform on Tuesday.
In response to the government's position, the experts advocated for surgical measures to protect retirees. They recommended that annual pension adjustments match inflation at a minimum, regardless of income levels, to ensure pensioners do not lose purchasing power.
