i
Fu u e o Wo k and Pension Design
Ped o Miguel da Sil a San os Almeida
Po uguese Pension Sys em
Disse a ion p esen ed as pa ial equi emen o ob aining
he Mas e ’s deg ee in In o ma ion Managemen
i
NOVA In o ma ion Managemen School
Ins i u o Supe io de Es a ís ica e Ges ão de In o mação
Uni e sidade No a de Lisboa
FUTURE OF WORK AND PENSION DESIGN
by
Ped o Miguel da Sil a San os Almeida
Disse a ion p esen ed as a pa ial equi emen o ob aining he Mas e ’s deg ee in In o ma ion
Managemen , wi h a specialisa ion in Knowledge Managemen and Business In elligence
Ad iso : P o esso D . Jo ge Miguel Ven u a B a o
Co-ad iso : D a. Ca a ina Gal ão
No embe 2020
ii
ABSTRACT
The new o ms o wo k, as such as C owdwo king and F eelance jobs, d i en by he echnologies
ad ances and globaliza ion a e in oducing mo e equen ca ee b eaks as well as highe a ia ions
on he wo ke 's income which a e incompa ible wi h he cu en old-age p o ec ion sys em in
Po ugal. Mos o he s udies pe o med in Po ugal a e a ound he sus ainabili y o he pension
scheme and ocus mainly on he pa ame ic changes. Only a ew s udies a e e lec ing a edesign
pension scheme like he No ional De ined Con ibu ion (NDC) implemen ed in Sweden, I aly and
Poland. The objec i e o his s udy is o p opose a new design o a pension model wi hin he new
con ex o he u u e o wo k. The pape analyzes he impac o he u u e o wo k on he cu en
Po uguese DB pension model and o he exis en pension models by simula ing pension en i lemen s
based on di e en ca ee b eaks and pensionable sala ies oscilla ions. The esul s o he s udy
con i med he inadequacy o he ac ual Po uguese DB pension model o non-s anda d wo ke s, and
a wo ke wi h mul iple b eaks on he se ice could ha e a signi ican loss on he e i emen pension
en i lemen . The s udy also con i med ha o he s andalone design models as he No ional De ined
Con ibu ion, Cash Balance, De ined Con ibu ion, and he Sys ems Poin s would p o ide he same
inadequacy le els o non-s anda d wo ke s. We concluded ha Be e idge and Bisma ck's plans
complemen each o he , and an op imal model wi hin he u u e o wo k would ha e o be based on
bo h cha ac e is ics o a Be e idge and Bisma ck models wi h he same le el o impo ance. The
s udy shows e idence ha mo ing away om he exis ing DB pension model o a mul i-model, a i s
sub-model like a DB plan no linked o he con ibu i e ca ee - a Pu e Be e idge model - wi h he
objec i e o “ edis ibu ion” and “po e y elie ”, and a second sub-model like a Bisma ck plan (DC o
Cash Balance ype) wi h he objec i e o “consump ion smoo hing” and “insu ance” would imp o e
he adequacy and ai ness o he pension e i emen o he non-s anda d wo ke s.
KEYWORDS
Fu u e o Wo k; Pension Design; Pension Schemes; Social Secu i y Sys ems, Digi al E a.
iii
ABSTRACTO
As no as o mas de abalho, como a p es ação de se iços po aplica i o ou abalho de eelance s,
impulsionadas pelos a anços da ecnologia e pela globalização, êm in oduzindo in e upções de
ca ei a mais equen es, bem como maio es a iações nos endimen os do abalhado , que são
incompa í eis com o a ual sis ema de pensões público em Po ugal. A maio ia dos es udos ealizados
em Po ugal, gi a em o no da sus en abilidade do egime de pensões publico e incide
p incipalmen e nas al e ações pa amé icas. Apenas alguns es udos analisam o impac o de
mudanças es u u ais no a ual modelo de pensões em Po ugal, como o modelo de “No ional
De ined Con ibui on” (NDC) implemen ado na Suécia, I ália e Polónia. O p incipal obje i o des e
es udo, é p opo um no o desenho de um modelo de pensões em Po ugal den o do no o con ex o
do u u o do abalho. O es udo analisa o impac o do u u o do abalho no a ual modelo de
po uguês e nou os modelos exis en es, simulando di ei os de pensão de e o ma baseado em
di e en es cená ios de in e upções con ibu i as e oscilações de salá ios, du an e a ca ei a
con ibu i a. Os esul ados con i mam a inadequação do a ual modelo po uguês de pensões pa a as
no as o mas de abalho, e um abalhado com múl iplas in e upções con ibu i as pode e uma
pe da signi ica i a na sua pensão de e o ma. O es udo ambém con i mou que ou os modelos
como a NDC, “Cash Balance”, Con ibuição De inida e o Sis ema de pon os êm os mesmos ní eis de
inadequação de que o modelo de pensões em Po ugal ela i amen e às no as o mas de abalho.
Concluímos que os planos do ipo “Be e idge” e “Bisma ck” se complemen am, e um modelo de
pensões ó imo e ia necessa iamen e e ambas as ca ac e ís icas de um modelo de Be e idge e
Bisma ck com o mesmo g au de impo ância. A p incipal ecomendação do es udo é a al e ação do
a ual modelo de pensões de BD, pa a um múl iplo modelo, um p imei o submodelo de plano de BD,
mas não inculado à ca eia con ibu i a, como um modelo Pu o de Be e idge em que a p incipal
obje i os é ga an i um endimen o mínimo e a edis ibu i idade de inanciamen o do sis ema,
complemen ado com um segundo modelo Bisma ck ( ipo DC ou Cash Balance) inculado à ca ei a
con ibu i a, e em que p incipal obje i o é sua iza impac o no endimen o pe dido de ido ao
e en o de e o ma e p o ege con a o isco de e o ma. O es udo demons a que ado ando ambas
ca ac e ís icas “Be e idgean” e “Bisma kian” i ia pe mi i melho es ní eis de adequação das pensões
de e o ma pa a as no as o mas de abalho.
PALAVRAS CHAVES
T abalhos do Fu u o; Desenho Pensões; Plano de Pensões; Sis emas de Segu ança Social, E a digi al.
i
INDEX
1.
In oduc ion .................................................................................................................. 1
2.
Li e a u e e iew .......................................................................................................... 5
2.1.
Social Secu i y F amewo k .................................................................................... 5
2.2.
The p oblem - globally ......................................................................................... 11
2.3.
The p oblem in Po ugal ...................................................................................... 12
2.4.
The u u e o wo k – adding mo e p essu e ....................................................... 14
2.5.
Wha esea ch done in Po ugal o sol e he p oblem? ..................................... 17
3.
Me hodology .............................................................................................................. 19
3.1.
Resea ch ques ions .............................................................................................. 19
3.2.
Resea ch me hod................................................................................................. 19
3.3.
Resea ch design ................................................................................................... 19
4.
Resul s and discussion ................................................................................................ 26
5.
Conclusions ................................................................................................................. 38
6.
Limi a ions and ecommenda ions o u u e wo ks ................................................. 43
7.
Bibliog aphy ................................................................................................................ 44
8.
Annexes ...................................................................................................................... 48

LIST OF ANNEXES
Annexe 1 – Pension Models and Unemploymen Insu ance in Po ugal ................................ 48
Annexe 2 - The Wo ld Bank’s Concep ual F amewo k............................................................ 53
Annexe 3 – Po uguese Social Secu i y F amewo k ................................................................. 54
i
LIST OF TABLES
Table 1 - The i s junc u e: Bisma ck s Be e idge ................................................................... 6
Table 2 - Mul ipilla Pension Taxonomy classi ica ion by he OECD ........................................ 10
Table 3 - Main e o ms o he public pension scheme in Po ugal .......................................... 12
Table 4 - Reduc ion on pension en i lemen s by model – Baseline Scena io .......................... 28
Table 5 - Reduc ion on pension en i lemen s by model – Con e gen Scena io .................... 29
Table 6 – Measu es sco es o he cu en Po uguese DB plan by p o ile ............................. 30
Table 7 – Compa ison measu es sco es by p o ile (DB e sus NDC) ....................................... 30
Table 8 – Compa ison measu es sco es by p o ile (DB e sus DC) .......................................... 31
Table 9 – Compa ison measu es sco es by p o ile (DB e sus Basic Plan+Cash Balance Plan)31
Table 10– Compa ison measu es sco es by p o ile (DB e sus Basic Plan + Poin s Sys ems) . 32
Table 11 – Compa ison measu es sco es by p o ile (Ac ual DB e sus DB wi h new pa ame e s)
.......................................................................................................................................... 32
Table 12 – Compa ison measu es sco es by p o ile (DB wi h new pa ame e s e sus Cash
Balance) ............................................................................................................................ 33
Table 13 – Replacemen Ra io by sub-Plan (Swiss model= Basic Pension + Cash Balance) .... 33
Table 14 – Measu e sco e o Swiss plan (Basic Pension + Cash Balance)............................... 33
Table 15 – Compa ison measu es sco es by p o ile (Ac ual DB Po uguese plan e sus Newly
Ta ge ed Plan + Cash Balance) ......................................................................................... 35
ii
LIST OF FIGURES
Figu e 1 - Po ugal Da a – Employmen ................................................................................... 16
Figu e 2 - Po ugal Da a - Ea nings ........................................................................................... 16
Figu e 3 - S a is ic Po ugal da a –employmen p o ile in Po ugal ........................................ 20
Figu e 4 - S a is ic Po ugal da a –employmen e olu ion in Po ugal .................................... 20
Figu e 5 – Baseline scena io - mul i b eaks .............................................................................. 21
Figu e 6 – Con e gen scena io - mul i b eaks ........................................................................ 21
Figu e 7 - Impac on he old-age bene i (Baseline scena io) .................................................. 26
Figu e 8 - impac on he old-age bene i (con e gen scena io) ............................................. 27
Figu e 9 – Replacemen Ra io measu e by model and p o ile ................................................. 34
Figu e 10 – Ac ua ial Fai ness measu e by model and p o ile ................................................. 34
Figu e 11 - Impac on he old-age bene i (Baseline scena io) ................................................ 36
Figu e 12 - Impac on he old-age bene i (con e gen scena io) ........................................... 36
1
1. INTRODUCTION
The Po uguese pension sys em is based on h ee pilla s o di e ing impo ance: he dominan
ea nings- ela ed old-age s a e pension sys em ( i s pilla ), he occupa ional pension p o ision (second
pilla ), and he pe sonal pension p o ision ( hi d pilla ). The i s pilla combines an ea nings- ela ed,
de ined bene i (DB), manda o y public scheme, comp ising wo sepa a e bu con e gen schemes,
wi h mino special sys ems o lawye s and solici o s (CPAS) and olde bank employees (J. M. B a o,
2015) (J.M. B a o, 2016). P i a e-sec o wo ke s a e co e ed by pensions wi hin he gene al social
secu i y scheme (Regime Ge al da Segu ança Social (RGSS)). Public se an s en olled be o e Decembe
2005 a e co e ed by pensions wi hin he o me ci il se ice pension scheme (Caixa Ge al de
Aposen ações (CGA)), ha has been closed o new en an s since 2006 and new ci il se an s
con ibu e o he gene al scheme. Ye , he CGA will con inue o ope a e o mos o he 21s cen u y.
Con ibu o y s a e pensions a e inanced on a pay-as-you-go (PAYG) basis by social con ibu ions paid
by bo h he employe and employee, complemen ed by a small ac ion o he alue-added ax (social
VAT). Addi ionally, he s a e sys em includes non-con ibu o y means- es ed i s - ie pension
bene i s, op-up minimum con ibu o y bene i s, and se e al a ge ed assis ance p og ams, ully
unded by gene al axes, aimed a p o ec ing hose wi h sho con ibu ion pe iods o low pension
en i lemen s mo e gene ally agains old-age po e y. The s a e pension scheme comp ises old age,
ea ly e i emen , disabili y, and su i o s' pensions. Toge he wi h supplemen a y bene i s, i was
designed o gua an ee he main enance o an app op ia e s anda d o li ing a e e i emen and in
he e en o disabili y o dea h (J. M. B a o, 2018) (OECD, 2019).
The ac ual Po uguese DB pension model migh ha e been a good i wi hin he dynamics o wo k,
economic en i onmen and he demog aphic popula ion a he ime o implemen a ion. The declining
o he old-age dependency a io, p ima ily due o he ageing o he Po uguese popula ion esul ing
om a decline in e ili y and an inc ease in li e expec ancy, and he economic changes o e he las
decades (low economic g ow h, low labou p oduc i i y and sala ies g ow h) ha e been pu ing
p essu e on he long e m sus ainabili y o his unding model (B a o J.M. & Coelho E., 2020). As a
esul o his con inuous demog aphic and economic changes, he e we e se e al e o ms o he social
secu i y sys em in Po ugal in oduced in 1993, 2000, 2002 and 2007. Ne e heless, all hese e o ms
we e pa ame ic changes (e.g., adjus ing he quali ying condi ions, indexing e i emen age o li e
expec ancy au oma ically, in oducing he sus ainabili y ac o , modi ying he bonus/penal ies o
la e/ea ly e i emen ) ins ead o s uc u al changes, designed o p o ide sho -public inance
alle ia ion wi hou sol ing he sys em’s long- e m sus ainabili y, adequacy and ai ness p oblems
(Ayuso, M., B a o, J. M., and Holzmann, 2020) (J.M. B a o, 2015) (J.M. B a o, 2016) (J. M. B a o, 2018)
(Jo ge M. B a o & He ce, 2020).
In ea nings- ela ed pension schemes, bene i s a e closely linked o indi idual employmen his o ies,
wages and con ibu ions. Unemploymen pe iods and o he olun a y o in olun a y ca ee b eaks
(e.g., pa - ime employmen , layo , e mina ion o ixed- e m con ac s, pa en al lea e, childbea ing,
child ea ing, illness/disabili y, s udying, mili a y se ice, housekeeping wi hou aising child en o
gene al inac i i y pe iods) ha e long- e m sca ing e ec s on u u e labou ma ke possibili ies and
ea nings, pe manen ly a ec ing wo ke s’ e i emen income and he pension sys em inancial
sus ainabili y (Jo ge M. B a o & He ce, 2020). Empi ical e idence sugges s ha unemploymen b eaks
a e he ype o ca ee in e up ion ha is mo e ha m ul o an employee's u u e wage p ospec s and,
8
li ing. Insu ance componen s designed o achie e some a ge s anda d o li ing in e i emen
compa ed wi h ha when wo king” (OECD, 2005).
All pension schemes design in he OECD coun ies includes a i s ie a ound he po e y elie
p inciple bu wi h di e en s uc u es. The e a e ou ypes o design he “ i s ie - edis ibu i e
schemes” – “social assis ance”, “sepa a e a ge ed e i emen -income p og ams”, “basic pension
schemes” and “minimum pensions wi hin ea ning ela ed plans”. All hese p og ams a e manda o y
and public pension schemes. The basic pension he bene i is a la bene i paid o e e y pensione
independen ly o ecei ing o he incomes om o he sou ces, o i depends only on yea s o wo k
(bu no on he pas ea nings). O he sou ces o e i emen income do no a ec he en i lemen o
he basic pension. The Ta ge ed plans pay a highe bene i o he poo e pensione s and a educed
bene i o be e -o e i ees, i.e., his ype o plans based on a edis ibu ion o bene i s by educing
he bene i amoun o weal hy pensione s and inc easing bene i s o needy pensione s. The
minimum pension is like a ge ed plans since he e is a le el gua an ee o pension income; howe e ,
he eligibili y and condi ions a e di e en . In gene al, pensione s o be eligible o ecei e he bene i
equi ed a minimum numbe o yea s o con ibu ions. Las ly, he e a e he coun ies which only
p o ides a uni e sal social-assis ance in which co e hose who a e no eligible o ecei e an old-age
pension by he public pension scheme.
The objec i e o he second ie is o ensu e a simila quali y o li e as du ing he ac i e li e pe iod.
The e a e di e en models o co e he second ie (J.M. B a o, 2015).
De ined Bene i plans (DB plans)
Mos o he coun ies ha e pu ely de ined bene i plan (DB), and his is he case o Po ugal. In
gene al, his ype o plan, he bene i is de ined based on a cons an acc ual a e linked o he yea s
o se ice (con ibu ions) and ea nings o wages. The con ibu ions made by he ac i e membe s,
usually in he o m o ax paymen s, a e used o pay he cu en pensione s, and he e o e no sa ed
o in es ed.
De ined Con ibu ions plans (DC plans)
The nex common ype o pension scheme is de ined con ibu ion plan (DC). In his ype o scheme,
each wo ke has an indi idual accoun wi h he con ibu ions sa ed and in es ed o capi alisa ion,
and he accumula ed capi al a e i emen age con e ed in o an annui y income and, in a e
si ua ions, o a Lump sum paymen . The DC schemes o ganised in se e al ways, o example, in
Aus alia, employe s equi ed o co e hei employees ia an indus y-wide und o a inancial
se ices company. In Hunga y, Mexico and Poland, he employees choose a pension p o ide
wi hou employmen pa icipa ion, and in Sweden, employees equi ed o con ibu e o a manda o y
indi idual accoun . Mos o he coun ies wi h a manda o y DC plan also ha e ano he ype o
scheme as such as poin sys em o he a e o e u n ha indi idual accoun s ea n as complemen a y
o gua an ee minimum e i emen p o ec ion.

9
“Poin s Sys ems”
Some coun ies do no s uc u e hei pension scheme ei he as a simple DB o DC plan. The i s case
is whe e he pension schemes o ganised as “poin s sys ems” – his is he case o he public pension
schemes in F ance, Ge man and Slo ak. The wo ke s c edi ed poin s based on hei con ibu ions
linked o hei a e age ea nings, and a e i emen , he sum o he poin s mul iplied by a pension-
poin alue o con e in o a pension income. The e i emen bene i depends on he alue poin a
e i emen age.
No ional Con ibu ion plans (NDC)
The e a e also he no ional-accoun s schemes – he Public schemes o I aly, No way, Poland, Sweden
and La ia. The yea ly con ibu ions made by ac i es as well he in e es on he con ibu ions eco ded
on an indi idual accumula ed no ional accoun ha exis s on he books o he managing ins i u ion. A
e i emen , each accumula ed accoun con e ed in o a pension income based on a no ional ac ua ial
con e sion ac o e lec ing he li e expec ancy a he ime o e i emen . The con ibu ions paid by
he ac i e membe s used o pay he cu en pensione s, bu in his case, he con ibu ions linked o
he e i emen bene i , and he e is a “no ional” a e e u n on he asse s. In his ype o plan di e s
om he simple DB plans, since he demog aphic and economic changes o e ime a e e lec ed in he
inal e i emen bene i by adjus ing he no ional e u n o economic luc ua ions o adjus ing he
ac ua ial annui y ac o o demog aphic luc ua ions. Usually, coun ies in oduce a gua an eed
minimum pension since unlikely he DB plans an adequa e bene i no gua an eed a e i emen age
(Holzmann, R., 2006) (Alho, J., B a o, J. M. & Palme , 2013) (Alho, J., B a o, J. M. & Palme , 2013)
(Holzmann, 2017) (J. M. & E. M. de F. B a o, 2018) (J. M. B a o, 2019)
Cash Balance Plans
Finally, he manda o y con ibu ions o Swiss occupa ional plans a e cash balance plans which is like
he DC plan, bu he e is a minimum in e es gua an ee on he con ibu ions made o he pension
und.
In Po ugal, he Social Secu i y F amewo k Law (Law no. 4/2007 o 16 h Janua y) delinea es he
ac ual design o he Po uguese Social Secu i y Sys em (annexe 3). The social secu i y sys em based
on h ee pilla s – he Ci izenship Social P o ec ion Sys em, he P o iden ial Sys em and he
complemen a y sys em; The i s - ie based on he po e y elie and edis ibu ion gua an eed by
he Ci izenship Social P o ec ion Sys em included in he subsys em solida i y supplemen ( a ge ed
plan), and by he P o iden ial Sys em wi h a minimum pension gua an eed a e 15 yea s o
con ibu ion; he second ie based on consump ion smoo hing and insu ance is co e ed by he
P o iden ial Sys em which is a de ined bene i plan (DB). (OECD, 2019). Table 2 shows he OECD
mul i-pilla pension axonomy o social secu i y schemes inclusi e o Po ugal.
10
Table 2 - Mul ipilla Pension Taxonomy classi ica ion by he OECD
Tie : unc ion Fi s - ie : uni e sal co e age, edis ibu i e Second- ie : manda o y, insu ance
P o ision Public Public P i a e
Type
Social
assis ance Ta ge ed Basic Minimum Type DB DC
Aus alia √ √
Aus ia
√
DB
Belgium √ √ DB
Canada
√
√
DB
Czech Republic √ √ √ DB
Denma k
√
√
DB/DC
√
Finland √ DB
F ance
√
√
DB+poin s
Ge many √ Poin s
G eece
√
√
DB
Hunga y √ DB √
Iceland
√
√
I eland √ √
I aly
√
NDC
Japan √ DB
Ko ea
√
DB
Luxembou g √ √ DB
Mexico
√
√
Ne he lands √ √ √
New Zealand
√
No way √ √ Poin s
Poland
√
NDC
√
Po ugal √ √ DB
Slo ak
Republic
√ Poin s
Spain
√
DB
Sweden √
NDC √ √
Swi ze land
√
√
DB
CB
Tu key √
√ DB
Uni ed
Kingdom √ √ √ DB
Uni ed S a es
√
DB
Sou ce: OECD; DB = De ined Bene i , DC = De ined Con ibu ion, CB = Cash Balance, and Poin s = Poin s Sys em.
Despi e he a ie y o social secu i y schemes, globally, all schemes we e designed based on he
social secu i y p inciples and used ools c ea ed mainly by social secu i y p og ams ini ially
es ablished in Ge many and he UK. Fu he mo e, wi h he igh ques ions and he p ope
concep ual amewo k empla e, each go e nmen had modelled hei schemes based on p e-
de ined objec i es and he ins umen s used o achie e he objec i es- he Bisma ck e sus
Be e idge models o a mix be ween he wo models (Ba , 2000).
11
2.2. T
HE PROBLEM
-
GLOBALLY
Nicolas Ba (2000) di e en ia es isk and unce ain y as o “ he isk, he p obabili y o po en ial
ou comes is known o es imable, wi h unce ain y i is no .” This dis inc ion is c ucial since we can
ac ua ially measu e he isk bu no he unce ain y. Public and p i a e pension schemes ace bo h
isks and unce ain ies. Ba hen iden i ies wo so s o unce ain y: “Mac oeconomic shocks” and
“Demog aphic shocks” (Ba , 2000). Indeed, hese wo ac o s we e he ini ia o s o challenging he
sus ainabili y o pension schemes in Wes e n Eu ope, s a ing in he 1970s and onwa ds. The
economic c isis in he 1970s, oge he wi h ongoing demog aphic al e a ions, had damaged se e al
go e nmen budge s. The inancing o public pension schemes, in pa icula , he pay-as-you-go
sys ems p e alen in he Bisma ck and Be e idge sys ems wen unde p essu e s a ed i s in he
UK, and la e in I aly and Sweden wi h he public de ici c isis in ea lie 1990s (Ebbinghaus, 2009).
Many coun ies in oduced e o ms on hei pension schemes in o de o main ain sus ainable hei
pension schemes and many coun ies ha e unde aken signi ican e o ms, and o he s a e now
expe iencing a simila p ocess (Ignacio Conde-Ruiz & Gonzalez, 2014).
(Felds ein, 2001) Felds ein p edic ed he axes o pay he u u e bene i s would need o ise sha ply
due o he ageing o he Eu opean popula ion. Felds ein s a ed ha his is no a empo a y issue bu
a pe manen issue. The ax a e will ha e o ise by abou 50 pe cen in mos coun ies wi h e en
mo e signi ican inc ease in some coun ies i no changes made o he s uc u e o he exis ing PAYG
schemes (Felds ein, 2001). Based on Ignacio and Gonzalez, he e is no doub ha he ageing
popula ion is damaging ha d he Pays-As-You-Go (Ignacio Conde-Ruiz & Gonzalez, 2014). Based on
Schuldi, he economic p essu e will be mo e se e e on he public pension schemes since he
demog aphic changes will lead o massi e ageing o he popula ion om 2020 onwa ds. He
men ioned wo signi ican demog aphics changes – he inc easing li e expec ancy and declining
e ili y a es wi h mo e subs an ial incidence wi hin wes e n Eu ope. Bo h Be e idge and Bisma ck
models a e highly ulne able o hese demog aphic changes. Bo h models ha e he pension paid o
pensione s based on he con ibu ions (in he o m o ax) paid by he ac i e membe s, and he e o e
when he a io be ween ac i es and pensione s declines, i.e., he e a e ewe ac i es o pay he
pensions in paymen o he pensione s, he sys em will come unde p essu e. (Schludi, 2005).
Wha ha e done Wes e n Eu ope coun ies o sol e he p oblem?
Despi e all he changes obse ed in he public pension sys ems s a ed in he 1970s and onwa ds, in
Wes e n Eu opean coun ies, only a ew coun ies such as Sweden and I aly pe o med s uc u al
changes on he public sys em by mo ing o a no ional de ined bene i (NDC) and eo ganised hei
sys em ho oughly o make hem mo e sus ainable o he u u e. Sweden was he unique coun y
ha mo ed om a basic pension plus ea nings- ela ed second pension (Be e idge ype) o a
con ibu o y ea nings- ela ed (Bisma ck Type) bu keeping uni e sal. Fu he mo e, Sweden and
Denma k in oduced unded pensions in he i s ie as a manda o y public pension. I aly did no
in oduce he unded pa as done by Sweden bu ins ead ans e ed he manda o y end-o -se ice
pay (“TFR” plans) in o a p i a e pension. In Ge many, he bi h o he i s Bisma ck social secu i y
scheme in oduced a new laye in he public sys em, he olun a y pe sonal pension (“Ries e ”) and
p omo ed collec i e occupa ional pension. The a ionali y is ha due o demog aphic changes, he
p inciple o consump ion smoo hing he inspi a ion o he Bisma ck design is no mee any longe ,
and he e o e, he need o in oduce a second laye on he public pension scheme o ill he gap. In
12
coun ies wi h he occupa ional second ie s, Swi ze land and he Ne he lands, he pension e o m
has been less p onounced, bu i is in he poli ical agenda. (Ebbinghaus, 2009). In conclusion, in
Wes e n Eu opean coun ies, he e has been a ans o ma ion on he public schemes, and as
men ioned by Ebbinghaus, despi e all he changes, “Ye , in he long- un hese ins i u ional changes
may be he i s s ep owa ds a mo e subs an ial change in he public-p i a e mix o come in he
u u e.” (Ebbinghaus, 2009).
2.3. T
HE PROBLEM IN
P
ORTUGAL
Po ugal is also acing he same issues as o he coun ies in Wes e n Eu ope since he Bisma ck and
he Be e idge models inspi e he Po uguese social secu i y model. In he pas , he e we e se e al
amendmen s o he social secu i y amewo k based on Law No. 28/84 o 14 h Augus . Table 4
illus a es he main e o ms pe o med o he public pension scheme in Po ugal since 1990.
Table 3 - Main e o ms o he public pension scheme in Po ugal
Sou ce: OECD epo (2019)
Howe e , all hese modi ica ions we e a a pa ame ic le el, a he s uc u al le el. (Manuel e al.,
2006). The ac ual s uc u e o he social secu i y sys em in Po ugal main ains he PAYG s uc u e
whe e he pilla s o his model a e i mly based on he equilib ium be ween he numbe s o axpaye s
and he numbe o pensione s ( o be mo e p ecise, be ween he numbe o con ibu o s and pensions)
which hea ily depend on he dynamics o he popula ion size and i s age s uc u e (old-age
dependency a io). A epo issued by OECD in he yea 2019 ela ed o he old-age pension sys em in
Po ugal, among all OECD coun ies, Po ugal is he coun y wi h he mos signi ican decline (in
pe cen age) in he size o ac i e popula ion be ween 2015 and 2045, pu ing e en mo e p essu e o
he ac ual, and al eady agile, public pension scheme in Po ugal.
A he na ional le el, he s udies emo e o he 1990s jus a ew yea s om he implemen a ion o
social secu i y based on he Be e idge model. Consequen ly, simila o o he coun ies, he
sus ainabili y o he PAYG schemes has been s udied and discussed o se e al yea s and exis s se e al
13
s udies on his heme in Po ugal appoin ing o he u gency o edesigned he public pension scheme
in Po ugal (OECD, 2019).
In 1995, Mendes ques ioned he implemen a ion o he uni e sal social secu i y inspi ed by he
Be e idge model in 1984 due o demog aphic and employmen ends in Po ugal. He an icipa ed he
ma u a ion o he Be e idge model by jus obse ed o he coun ies ha adop ed he Be e idge model
ea lie han Po ugal and we e acing issues wi h he public pension sus ainabili y. Mendes p edic ed
a signi ican inc ease in he ax con ibu ions paid by he ac i e membe s o he cu en pensione s,
which would no pe mi indi iduals and employe s o con ibu e o he second and he hi d pilla o
he pension sys em (Mendes, 1995). In 1997, due o he c isis and bank up cy o he Eu opean Social
Secu i y schemes, Sil a pe o med a esea ch s udy which con i med he p e ious s udy ela ed o he
ma u a ion o he PAYG schemes. Acco ding o Sil a, he Po uguese social secu i y sys em is ma u e,
and i would no be sus ainable in he long e m due mainly o wo ac o s – due o demog aphic
p essu e – dec ease on he e ili y a es and inc ease on he li e expec ancy, and due o he e o m
on educa ion (ex ension in yea s o he manda o y schola ship) which delay he s a o he ac i e li e
o Po uguese ci izens (Sil a, 1997). In 2004, Pe ei a Da Sil a o esaw he p obabili y o he popula ion
aged o e 65 would be inc eased by 70 pe cen in he yea s be ween 2000 and 2050. A he same
ime, he p edic s ha he p opo ion o age unde 15 will emain cons an , dec easing om 20 pe
cen in 2000 o 19 pe cen in 2019. The da a p ojec ions e ealed a signi ican di e gence be ween
he e olu ion o pensione s and ac i e membe s h ea ening he equilib ium o he PAYG scheme in
Po ugal. He concluded he s udy ha in o de o ensu e he sus ainabili y o he public pension
scheme a e he yea 2050, signi ican changes need o be made o he ac ual public pension sys em
in Po ugal (Pe ei a Da Sil a, Tomé Calado, & Medei os Ga cia, 2004). In 2006, Rod igues concluded
ha popula ion ageing is causing se e e isk o he sus ainabili y o public pension schemes and
inc eases axes o inance he public pension sys em would be ine i able i no changes in he cu en
social secu i y sys em would be pe o med a he s uc u al le el. In he las couple o yea s, se e al
s udies appea s essing he u gency o he need o immedia e s uc u al changes in he public
pension scheme in Po ugal (Rod igues & Pe ei a, 2006).
In ecen yea s, Po ugal has implemen ed nume ous ( empo a y and pe manen ) pa ame ic pension
e o ms aimed a educing public pension expendi u es, wi h li le ma gin o add essing income
adequacy conce ns in an al eady highly aged socie y. The main policy ini ia i es we e d i en by he
sho - e m need o iscal consolida ion a he han by a long- e m p ospec o he design o pension
sys ems. Pa ame ic e o ms include: (i) he in oduc ion o a sus ainabili y ac o in he pension
o mula; (ii) an inc ease in he s a u o y e i emen age; (iii) mo ing om bes yea s o li e ime a e age
ea nings; (i ) a new indexa ion mechanism linked o p ices and eal GDP g ow h; ( ) he in oduc ion
o bonuses o la e e i emen and penal ies o ea ly e i emen ; ( i) suspension o ea ly- e i emen
egimes; ( ii) nominal pension cu s; and ( iii) means- es ing o non-con ibu o y bene i s; (ix)
con e gence o ules be ween RGSS and CGA egimes. Long- e m p ojec ions show ha sys ems a e
no sus ainable om he economic, inancial and demog aphic poin o e iew, and despi e he se e al
wa es o pension e o ms made o e he las 20 yea s, he popula ion ageing and economic changes
d i en by social and echnological changes in he labou ma ke will con inue o impac he public
pension schemes and change he li ing condi ions o pensione s (J.M. B a o, 2012) (J. M. B a o, 2012)
(Jo ge Miguel B a o, A onso, & Gue ei o, 2013) (B a o, J. M., Gue ei o, G., A onso, 2014) (J. M. B a o,
2017).

14
2.4. T
HE FUTURE OF WORK
–
ADDING MORE PRESSURE
S anda d and non-s anda d o m o wo k
Adding e en mo e p essu e o he public pension models is he apid ans o ma ion o he wo king
amewo k d i ing by he echnological ad ances and globalisa ion. The s anda d wo king model, used
as a base o a pension design, is mo ing om ull- ime wo k unde an open-ended employmen
con ac o a ypical o ms o wo k wi h ea u es incompa ible wi h ac ual pension designs (Schoukens
& Ba io, 2017). Th ee main cha ac e is ics de ine a s anda d o m o wo k: i) di ec employmen
ela ionship whe e he e is a clea dis inc ion o bila e al ela ion be ween a single employe and
employee; ii) Labou s abili y whe e he wo k a angemen s a e o an inde ini e pe iod and only
e mina es unde pa icula si ua ion egula ed by labou law, and iii) Income Secu i y whe e he
employee ecei es a ixed income paid egula ly by he employe in exchange o hei se ices. The
ac ual design o he public pension scheme is s ongly co ela ed wi h hese h ee concep s. i.e., he
majo i y o he public pension schemes a e s uc u ed as an income eplacemen unde he pe cep ion
ha he s anda d o wo k is he p ima y income sou ce. The u u e o wo k is challenging somehow
hese h ee concep s whe e he e is no clea dis inc ion be ween a di ec single ela ionship employe
and employee, he income made by he employee along he wo k ca ee is unp edic able as well he
du a ion o he wo k assignmen s (Schoukens & Ba io, 2017).
The non-s anda d o ms o wo k ha e he ollowing issues ela ed o old-age p o ec ion co e age due
o he lack o one o all o he h ee main ea u es ha de ine he s anda d o m o wo k (Runde &
Milne , 2018) (ILO, 2019):
- Labou s abili y: Uns able wo k ca ee s, discon inuous ca ee s and sho wo king hou s
esul ing in inadequa e co e age o limi ed bene i s. Pension schemes o en equi e
minimum yea s o con ibu ions o eligibili y o ecei e a e i emen bene i , and he e o e
indi idual co e ed by he a ypical wo k o ms a e usually pushed ou o social secu i y
sys em, e en hough hey may accumula e o e ime a mul i ude o ixed/pa - ime wo k
assignmen s bu no enough o be eligible o social insu ance pu poses;
- Income Secu i y: Usually, lowe ea nings and wi h high a iance on he ea nings. O en,
insu ance-based and non-con ibu o y bene i s co-exis , and indi iduals can access only he
la e (e.g. only basic pension and no ea nings- ela ed).
- Di ec single employe ela ionship: Di icul y o ha e a clea dis inc ion be ween employe
and he employee, and his is a cen al elemen o any social secu i y sys ems o paying dues
( inancing); Who should be liable o he employe con ibu ions i an employe is no well
iden i ied? Sel -employed can choose o decla e lowe -con ibu ion base, bu also ecei ed
lowe bene i en i lemen ;
15
- Po abili y: lack o egula ion o ensu e labou ma ke mobili y. Acqui ed en i lemen s los
du ing a change in employmen s a us o job (e.g. ollowing a ansi ion om dependen o
sel -employmen when igh s di e ac oss employmen s a uses, o be ween jobs i hey ied
o a speci ic employmen ela ionship). Addi ionally, some ac i i ies do no ise o pension
en i lemen s (e.g. sel -employmen in many ju isdic ions and casual o i egula wo k in
some);
- Taxa ion o pensions: The cu en “Exemp -Exemp -Taxed” (“EET”) egime adop ed in mos
coun ies, whe e bo h con ibu ions and e u ns on in es men a e exemp ed om axa ion
while bene i s a e ea ed as axable income upon wi hd awal, and he inc easing mobili y o
e i ees challenges he adi ional de e ed axa ion a e mo i a ing signi ican ax a bi age
ac oss coun ies (J. M. B a o, 2016) (J. M. B a o, 2018).
Bisma ck e sus Be e idge models
Analysed he e ec o he non-s anda d o ms on he Bisma ck e sus Be e idge models, he e is a
gene al pe cep ion ha he e is limi ed and lowe access o he “non-s anda d wo ke s” in he
Bisma ck sys ems since he bene i is linked di ec ly o he con ibu ions paid based on he sala ies;
he e o e, wi h mo e equen ca ee b eaks and lowe wages. On he o he side, he Be e idge
sys ems be e designed o deal wi h he impac o he e ec s o he non-s anda d o ms o wo k
since he bene i is usually a la - a e bene i . Al hough his may be ue, howe e , mos o he
coun ies do no ha e a pu e “Be e idge model”, and usually he e is a second- ie wi h p i a e-
scheme wi h a high le el o bene i s, whe e in mos si ua ions, he non-s anda d o wo ke s no
p o ec ed by his second- ie . Addi ionally, i is ques ionable whe e Be e idge sys ems, wi h an
inc ease on mo e equen b eaks o wo k and lowe sala ies, migh be no inanced only by axes
wi hou he suppo o wo k con ibu ions. Fu he mo e, his b ings o ano he issue abou he
ai ness o he adi ional o ms o wo k inancing he i s - ie uni e sal schemes almos
en i ely(Schoukens & Ba io, 2017).
Non-s anda d o ms o wo k in Po ugal
A ypical o ms o wo k as such as empo a y wo k, pa - ime wo k and sel -employmen ep esen
al eady a hi d o all ype o employmen ela ionship in he OECD coun ies (Schoukens & Ba io,
2017). Howe e , many o he o ms o non-s anda d o wo k a e eme ging as such as pla o ms
wo ke s, lexible o on-call con ac s ha also challenge he pension s uc u es wo ldwide. In his
pape , he ocus is on wo ypes o non-s anda d o he wok - “Tempo a y employmen ” and Sel -
employmen ” since hese a e he p edominan ype o non-s anda d wo ke s in Po ugal.
16
Figu e 1 - Po ugal Da a – Employmen
Sou ce: OECD
In he dashboa d abo e based on da a p oduced by he OECD o Po ugal, he e is a s eep dec ease
in he non-s anda d o ms o wo k (sel -employmen , pa - ime and empo a y wo ke s), om he
yea 2012 and onwa ds (g aph II), bu his dec ease linked o he unemploymen a e ha a ec ed
mo e he non-s anda d wo ke s as shown in g aph IV. This explici shows e idence ha he
in e up ions o wo k a ec mo e he non-s anda d ypes o wo k. Based on da a, he sel -
employmen wo ke s a e he mos a ec ed by he dec ease in he employmen a e (g aph I). The
non-s anda d wo ke s ep esen almos 45% o he employmen in he yea 2018.
Figu e 2 - Po ugal Da a - Ea nings
Sou ce: OECD
The wo g aphs abo e ep esen he incidence o low pay wo ke s (ea ning less han wo- hi ds o
median ea nings) and high paymen wo ke s (ea nings mo e han one-and-a-hal ime median
ea nings) o ull- ime employees. The o e all dec ease on he a e age ea nings (g aph I) ma ches
wi h he dec ease o he a e age ea nings o he lowe -ea nings p o ile. The highe -ea nings p o ile
main ains a cons an o a sligh inc ease in he a e age ea nings o e he yea s. The dec ease o
lowe pay wo ke s likely co ela ed o he sel -employed wo ke s and empo a y wo ke s, usually
wi h lowe ea nings o wi h mo e luc ua ions o e he yea s han he s anda d o ms o wo k.
17
Insigh s om OECD
In 2019, he OECD sugges ed wo basic concep s o ackle some o he challenges acing he old-age
social p o ec ion o he non-s anda d o ms o wo k. The OECD sugges ed ying en i lemen s o
indi idual wo ke s a he han speci ic employmen ela ionships o o do he opposi e and un ie
bene i s om con ibu ions. The i s concep , OECD sugges ed, “Indi idualisa ion o social
p o ec ion” simila o he NDC plans as implemen ed by se e al coun ies like Sweden, I aly and
Poland. On his ype o plan, social p o ec ion con ibu ions made by wo ke s, employe s o he
s a e on he wo ke behal linked o an indi idual no ional accoun – his measu e would ackle he
high a ia ions o he sala ies as well combining incomes om di e en sou ces. Addi ionally, his
concep p ese es igh s du ing job changes and ca ee b eaks and would sol e he “double
con ibu ion p oblem”. On he o he hand, since his is an indi idual use, his solu ion would no
inco po a e he isk-sha ing undamen al o any insu ance, he e o e, would no p o ec agains
ca as ophic isks as such disabili y. Addi ionally, i is no he igh solu ion o many low-income
wo ke s and pa - ime wo ke s unless he go e nmen would sponso lowe -income wo ke s. The
second concep o un ying social p o ec ion om he employmen ela ionship would be by making
Social Secu i y mo e Uni e sal – un ie e i emen bene i s o con ibu ions, i.e. adop a pu e
Be e idge model o all ci izens. I is he ype o solu ion he e is he isk o c owding ou employe
con ibu ions (OECD, 2019).
2.5. W
HAT RESEARCH DONE IN
P
ORTUGAL TO SOLVE THE PROBLEM
?
The e we e ew esea ch pape s published in he las 15 yea s o assess he long- e m sus ainabili y
o he Po uguese Pension Sys em empi ically, and mos o hem ocused on pa ame ic changes,
despi e he ac , as concluded om ecen esea ch pape s, ha he Po uguese Pension Sys em will
no be sus ainable wi h he cu en PAYG design.
Rod igues measu ed he long- e m inancial sus ainabili y o he public pension sys em in Po ugal
and e alua ed a ious e o m op ions in a dynamic gene al equilib ium amewo k. The s udy ound
ha he e a e limi s o wha can be achie ed h ough pa ame ic e o ms o he PAYG sys em.
Indeed, o ensu e long- e m inancial sus ainabili y, as well as he adequacy o pension income, a
public second pilla needs o be e ec ed once he i s pilla is signi ican ly scaled back. Re o ming he
PAYG sys em canno go much u he han sol ing an es ima ed 47.6% o he p oblem o inancial
sus ainabili y. E en i he PAYG pilla we e inancially sus ainable in he long e m, se ing up a
second pilla would be ad ised (Rod igues & Pe ei a, 2006).
Pina Manso analysed he impac o a simula ed ansi ion o an NDC scheme on he Pension Sys em
in Po ugal. The esul s sugges ha e en a e wo decades o pa ame ic e o ms and pension
adjus men s, he e is s ill a deeply oo ed sus ainabili y p oblem in he Po uguese Pension Sys em.
The hesis used a Dynamic Mic osimula ion Model (DYNAPOR) o analyse he impac o a ansi ion
om a adi ional De ined Bene i Pay-As-You-Go pension scheme o a No ional De ined Con ibu ion
sys em on bo h he inancial and he social sus ainabili y o he pension sys em in Po ugal. The
esul s showed ha while he NDC scena ios ou pe o m he DB-PAYG sys em in e ms o inancial
sus ainabili y, i does so a he cos o he social componen . The a ious ea u es o he NDC pension
24
The pension poin cos and he alue o he poin s a e e alua ed by indexa ion a es de ined by he
plan. De ining pa ame e , u, as he indexa ion a e o pension cos , and pa ame e , n, o indexa ion
a e o pension alues, such as 

= 

(1+

), and 

= 

(1+

), we can ew i e he
pension bene i o a poin sys em as ollows:
=

(1+

)







And he eplacemen a io de ined as ollows:


=(1+

1+









The No ional accoun s wo k like poin s, bu he uni alue is exp ess in cu ency a he han in he
numbe o poin s. In lows a e equal o con ibu ions (in cu ency), i.e., wages mul iplied by he
con ibu ion a e. The no ional capi al is inc eased each yea by he no ional in e es a e, . A
e i emen , he accumula ed no ional capi al is di ided by a no ional ac ua ial annui y ac o , 

as
de ined by he plan ules. The pension bene i o NDC de ined as ollows:
 =

(1+

)





and he eplacemen a io is:


=(1+

1+








The DC wo ks simila ly wi h he NDC plan. Howe e , he con ibu ions (in cu ency) made du ing he
yea a e capi alized by he ac ual in e es a es depending on he in es men s a egy, e u n asse s,
ins ead o es ablished no ional a e , and he annui y ac o is based on he ma ke condi ions a
e i emen age, ins ead o a no ional annui y ac o .
The accumula ed con ibu ions made o he social secu i y sys ems a e i emen age a e as ollows:


= 

(1+

)



Whe e, 

is he capi aliza ion o he con ibu ions made by he pensione du ing he ac i e li e. In
he cases whe e he con ibu ions a e made in he o m o axes, and no capi alized, he 

is null
on he o mula abo e.

25
The es ima ed “ ai ” bene i a e i emen ob ains by di iding he accumula ed con ibu ions (in he
o m o ax paymen s) h ough all ac i e li e ime by he expec ed u u e li e ime a e i emen age,


based on he assumed mo ali y dec emen s.
Fai =



The “ac ua ial ai ness” measu ed used on his pape is he e i emen pension bene i de ined by he
model di ided by he es ima ed pension ai bene i based on he accumula ed con ibu ions o ax
paid, i.e.
Ac ua ial Fai ness Measu e=  (  ℎ  )
 Fai  
(Boulhol, 2019)
26
4. RESULTS AND DISCUSSION
Why doesn’ he cu en Po uguese pension scheme i well wi hin he con ex o he u u e o
wo k?
The g aph in igu e 7 shows he pe cen age educ ion in he old-age bene i compa ing wi h he
a e age wo ke ha did no su e wo k in e up ions du ing he ac i e li e. The modelling assumes
ha pos -in e up ion ea nings esume o ha o he wo ke who has no su e ed a ca ee b eake .
Figu e 7 - Impac on he old-age bene i (Baseline scena io)
Sou ce: Sou ce: Au ho ’s p epa a ion; No es: AW-=A e age Wage, NMW= Na ional Minimum Wage.
The longe he pe iod o a ca ee b eak, he highe is he educ ion on he old-age pension
en i lemen . Fo he nons anda d wo ke s ha ha e an in e up ion o 15 yea s will lose 37% o he
old-age pension agains 25% o he a e age wo ke co e ed by he unemploymen p og am. As
expec ed, he longe he b eak o se ice, he highe is he educ ion impac on he old-age pension
en i lemen . The a e age wo ke co e ed by he unemploymen p og am, he old-age pension can
be educed by 1% o 25% as he in e up ion inc ease om 1 o 15 yea s, and o wo ke s no
co e ed by unemploymen o all ea nings p o iles, he old-pension en i lemen educed be ween 2%
o 35% as he in e up ion inc ease om 1 o 15 yea s. The gap be ween he wo ke p o ec ed by
he unemploymen p og am and he wo ke no p o ec ed by he unemploymen p og am inc eases
signi ican ly a e i e yea s o b eak. The di e ence in he wage sala ies has li le impac since we
assumed he pos -in e up ion ea nings esume o ha o he wo ke who has no su e ed a ca ee
b eake .
The second g aph below assumes a loss o 10% o each yea o in e up ion on he pos -in e up ion
wage sala y, and hen ca ch-up wi h he baseline scena io in i e yea s.
-50.00%
-45.00%
-40.00%
-35.00%
-30.00%
-25.00%
-20.00%
-15.00%
-10.00%
-5.00%
0.00%
0 3 6 9 12 15
% dec ease
Yea s o b eak
AW
MNW
0.5 AW
0.75 AW
1.5 AW
2 AW
3 AW
27
Figu e 8 - impac on he old-age bene i (con e gen scena io)
Sou ce: Sou ce: Au ho ’s p epa a ion; No es: AW-=A e age Wage, NMW= Na ional Minimum Wage.
Iden ical o he i s scena io, smalle b eaks ha e li le impac on he old-age pension en i lemen s.
Howe e , a e h ee yea s o in e up ion, he pension en i lemen can be educed by 5% wi h h ee
yea s b eak o 37% wi h 15 yea s b eak o wo ke s co e ed by unemploymen p og am and om 8%
wi h h ee yea s b eaks o 49% wi h 15 yea s b eak o wo ke s no co e ed by unemploymen
p og am o all p o ile’s ea nings.
The e is an e idence o he inadequacy o he ac ual Po uguese pension model o nons anda d
wo ke s wi h mo e equen in e up ions on hei ca ee compa ed wi h he s anda d wo ke s, and
in his case, hese wo ke s could lose be ween 2% o 50% o he pension en i lemen depending on
he leng h o in e up ions. The e is also e idence o nons anda d wo ke s no co e ed by he
unemploymen p og am ha can lose mo e han 5% o 12% compa ed wi h a e age wo ke s wi h
he same leng h o pe iods b eaks du ing he ac i e li e.
In summa y, he s udy eaches he same conclusion has B a o (He ce & B a o, 2017). The exis ence
o con ibu ion c edi s a angemen s somehow p o ec s wo ke s om losing pension en i lemen s,
and he mul iple b eaks ha e a highe impac han he single b eaks, mo e equen in e up ions
ha e a mo e signi ican impac on he pension en i lemen s, and he ac ual DB sys em is inadequa e
o nons anda d wo ke s.
A e o he models be e o han he DB model o applied by he Po uguese old-age pension
scheme?
The ables below show he pe cen age o educ ion on he old-age pension en i lemen s based on
he Baseline scena io and he “con e gen ea nings” scena io.
-50.00%
-45.00%
-40.00%
-35.00%
-30.00%
-25.00%
-20.00%
-15.00%
-10.00%
-5.00%
0.00%
0 3 6 9 12 15
% dec ease
Yea s o b eak
AW
MNW
0.5 AW
0.75 AW
1.5 AW
2 AW
3 AW
28
Table 4 - Reduc ion on pension en i lemen s by model – Baseline Scena io
Sou ce: Au ho ’s p epa a ion; No es: DB=De ined Bene i ; NDC=No ional De ined Con ibu ion; DC (o FDC)=Funded
De ined Con ibu ion; AW-=A e age Wage, NMW= Na ional Minimum Wage.
The loss o pension en i lemen is lowe o he a e age wo ke since he s udy assumed ha he
Po uguese unemploymen p og am does no co e he nons anda d wo ke . All he models ha e
simila losses on he pension en i lemen s— he same si ua ion o he “con e gen ” scena io, as
shown below. Howe e , o he “Poin s Sys ems” he e is a maximum loss educ ion o 37% o
highe ea nings p o ile because o he ceiling amoun . In summa y, he o he pension models like
he cu en DB Po uguese pension model shows e idence o signi ican pension en i lemen losses
o he nons anda d wo ke s and biased di e ences be ween he a e age wo ke s and nons anda d
wo ke s.
1 y mul iple b eaks o wo k impac Baseline AW MNW 0.5 AW 0.75 AW 1.5 AW 2 AW 3 AW
Pu e DB plan 0% -2% -7% -7% -7% -7% -7% -7%
NDC Plan 0% -2% -7% -7% -7% -7% -7% -7%
Basic Pension + Cash Balance 0% -4% -7% -7% -7% -7% -7% -7%
Floo O se Plan (DC) 0% -3% -7% -7% -7% -7% -7% -7%
Poin s Sys ems 0% -2% -7% -7% -7% -7% -7% -7%
2 y s mul iple b eaks o wo k impac
Baseline AW MNW 0.5 AW 0.75 AW 1.5 AW 2 AW 3 AW
Pu e DB plan 0% -5% -15% -14% -14% -14% -14% -14%
NDC Plan 0% -5% -15% -14% -14% -14% -14% -14%
Basic Pension + Cash Balance 0% -9% -14% -14% -14% -14% -14% -14%
Floo O se Plan 0% -6% -15% -14% -14% -14% -14% -14%
Poin s Sys ems 0% -5% -14% -14% -14% -15% -15% -15%
3 y s mul iple b eaks o wo k impac
Baseline AW MNW 0.5 AW 0.75 AW 1.5 AW 2 AW 3 AW
Pu e DB plan 0% -10% -22% -22% -22% -22% -22% -22%
NDC Plan 0% -9% -22% -22% -22% -22% -22% -22%
Basic Pension + Cash Balance 0% -14% -21% -20% -21% -22% -21% -21%
Floo O se Plan (DC) 0% -10% -22% -22% -22% -22% -22% -22%
Poin s Sys ems 0% -10% -21% -21% -21% -22% -22% -22%
4 y s mul iple b eaks o wo k impac
Baseline AW MNW 0.5 AW 0.75 AW 1.5 AW 2 AW 3 AW
Pu e DB plan 0% -18% -30% -29% -29% -29% -29% -29%
NDC Plan 0% -16% -30% -29% -29% -29% -29% -29%
Basic Pension + Cash Balance 0% -21% -28% -27% -28% -29% -28% -28%
Floo O se Plan (DC) 0% -18% -30% -29% -29% -29% -29% -29%
Poin s Sys ems 0% -17% -29% -29% -29% -30% -30% -30%
5 y s mul iple b eaks o wo k impac
Baseline AW MNW 0.5 AW 0.75 AW 1.5 AW 2 AW 3 AW
Pu e DB plan 0% -25% -38% -37% -37% -37% -37% -37%
NDC Plan 0% -22% -38% -37% -37% -37% -37% -37%
Basic Pension + Cash Balance 0% -28% -36% -34% -35% -36% -35% -35%
Floo O se Plan (DC) 0% -26% -38% -37% -37% -37% -37% -37%
Poin s Sys ems 0% -25% -37% -37% -37% -37% -37% -37%
29
Table 5 - Reduc ion on pension en i lemen s by model – Con e gen Scena io
Sou ce: Au ho ’s p epa a ion; No es: DB=De ined Bene i , NDC=No ional De ined Con ibu ion, DC (o FDC)=Funded
De ined Con ibu ion; AW-=A e age Wage, NMW= Na ional Minimum Wage.
How should be he Po uguese pension scheme design o i wi hin he con ex o he u u e o wo k?
The adequacy o a pension model measu ed by he le el o eplacemen a io, i.e., lowe
eplacemen a io measu es imply an inadequa e pension model, and highe eplacemen a ios
be e he adequacy o he pension model. On he o he hand, he ac ua ial ai ness, as desc ibed in
sec ion h ee, measu es he ai ness be ween he con ibu ions and he bene i o he pension
model. Lowe he ac ua ial ai ness measu e be e is he balance be ween he in lows and ou lows
o he pension model, and highe is he ac ua ial ai ness measu e mo e unbalanced is he link
be ween ou lows and in lows o he pension model. The e o e, he bes model should ha e he
maximum eplacemen a io and he minimum ac ua ial ai ness measu es, and i is he balance
be ween hese wo measu es ha we may ind he op imal pension model. Addi ionally, highe
ac ua ial ai ness measu es o lowe ea nings p o iles and lowe ac ua ial ai ness measu es o
highe p o ile ea nings implies a dis ibu i eness ea u e o a pension model wi hin gene a ions.
(Con e gen scena io)
1 y mul iple b eaks o wo k impac Baseline AW MNW 0.5 AW 0.75 AW 1.5 AW 2 AW 3 AW
Pu e DB plan 0% -3% -8% -8% -8% -8% -8% -8%
NDC Plan 0% -3% -8% -8% -8% -8% -8% -8%
Basic Pension + Cash Balance 0% -5% -8% -7% -8% -8% -7% -7%
Floo O se Plan (DC) 0% -3% -8% -8% -8% -8% -8% -8%
Poin s Sys ems 0% -3% -8% -8% -8% -7% -7% -7%
2 y s mul iple b eaks o wo k impac
Baseline AW MNW 0.5 AW 0.75 AW 1.5 AW 2 AW 3 AW
Pu e DB plan 0% -8% -17% -17% -17% -17% -17% -17%
NDC Plan 0% -7% -17% -17% -17% -17% -17% -17%
Basic Pension + Cash Balance 0% -11% -16% -16% -16% -16% -16% -15%
Floo O se Plan 0% -8% -17% -17% -17% -17% -17% -17%
Poin s Sys ems 0% -8% -16% -16% -16% -15% -15% -15%
3 y s mul iple b eaks o wo k impac
Baseline AW MNW 0.5 AW 0.75 AW 1.5 AW 2 AW 3 AW
Pu e DB plan 0% -15% -27% -26% -26% -26% -26% -26%
NDC Plan 0% -13% -27% -26% -26% -26% -26% -26%
Basic Pension + Cash Balance 0% -19% -26% -24% -26% -26% -25% -23%
Floo O se Plan (DC) 0% -15% -27% -26% -26% -26% -26% -26%
Poin s Sys ems 0% -14% -26% -26% -26% -22% -22% -22%
4 y s mul iple b eaks o wo k impac
Baseline AW MNW 0.5 AW 0.75 AW 1.5 AW 2 AW 3 AW
Pu e DB plan 0% -25% -35% -37% -34% -37% -37% -37%
NDC Plan 0% -22% -38% -37% -37% -37% -37% -37%
Basic Pension + Cash Balance 0% -30% -37% -34% -36% -36% -34% -32%
Floo O se Plan (DC) 0% -26% -38% -37% -37% -37% -37% -37%
Poin s Sys ems 0% -26% -37% -37% -37% -30% -30% -30%
5 y s mul iple b eaks o wo k impac
Baseline AW MNW 0.5 AW 0.75 AW 1.5 AW 2 AW 3 AW
Pu e DB plan 0% -37% -47% -48% -46% -49% -49% -49%
NDC Plan 0% -33% -50% -49% -49% -49% -49% -49%
Basic Pension + Cash Balance 0% -43% -49% -44% -48% -47% -45% -40%
Floo O se Plan (DC) 0% -38% -50% -49% -49% -49% -49% -49%
Poin s Sys ems 0% -38% -50% -50% -50% -37% -37% -37%

30
The cu en eplacemen a ios and ac ua ial ai ness measu es o he DB Po uguese model o he
di e en p o iles assuming no in e up ions in wo k a e as ollows:
Table 6 – Measu es sco es o he cu en Po uguese DB plan by p o ile
Sou ce: Au ho ’s p epa a ion; No es: DB=De ined Bene i ; Measu e Sco e de ined on sec ion 3.2.; AW-=A e age Wage,
NMW= Na ional Minimum Wage.
The ac ua ial ai ness measu e o he a e age wo ke is lowe compa ed wi h he o he p o iles due
o he sligh ly highe con ibu ions a es du ing ac i e li e pe iod. The e is li le edis ibu ion wi hin
gene a ions in he DB Po uguese model since he a iance o he ac ua ial ai ness measu es
be ween highe ea nings p o iles, and lowe ea nings p o ile is minimal. Howe e , he ac ua ial
ai ness measu es a e conside ably highe o all ea nings p o ile pu ing in cause he sus ainabili y o
he ac ual pension model. In summa y, he majo issue o he DB pension model in Po ugal is he
conside able highe ac ua ial ai ness measu es be ween all p o iles and low le els o edis ibu ion
wi hin he same gene a ion. The e o e, he i s s ep o design a pension model adequa e o
nons anda d and s anda d wo ke s is o ha e lowe ac ua ial ai ness measu es o highe ea nings
p o iles and inc ease he le els o edis ibu ion wi hin he same gene a ion.
Wha would be he ac ua ial ai ness o o he pension models wi h he same eplacemen a io
measu es as he DB plan o Po ugal o he a e age wo ke ?
The models a e easily adjus ed o ob ain he same eplacemen a io measu e o he cu en DB
Po uguese DB plan by eadjus ing he pa ame e s o each pension model o he a e age wo ke .
Fo he NDC pension model, a eplacemen a io o 46% a ained o an a e age wo ke by se ing up
he no ional asse e u n o 3% and discoun a e used on he no ional con e sion ac o o 3.25%
ins ead o he assumed hypo he ical discoun a e o 3.00%.
Table 7 – Compa ison measu es sco es by p o ile (DB e sus NDC)
Sou ce: Au ho ’s p epa a ion; No es: Pu e DB= he cu en Po uguese De ined Bene i plan; NDC plan = No ional De ined
Plan; Measu e sco es de ined on sec ion 3.2.; AW-=A e age Wage, NMW= Na ional Minimum Wage.
The ac ua ial ai ness sligh ly imp o ed o he a e age wo ke bu no su icien ly enough o be
conside ed a signi ican ad an age. Howe e , o he nons anda d wo ke s, he ac ua ial ai ness
measu es imp o ed conside able, bu he eplacemen a io measu e dec ease be ween 5 o 10
basis poin s. The edis ibu i e le el wi hin gene a ions by analysed he di e ence in a iances o he
ac ua ial ai ness measu es be ween p o iles is inexis en on his ype o model.
Fo he DC pension model, a eplacemen a io o 46% a ained o an a e age wo ke by assuming a
e u n on asse s by 2.90% p.a.
P o ile AW MNW 0.5 AW 0.75 AW 1.5 AW 2 AW 3 AW
Pu e DB plan
Replacemen Ra io 46% 45% 50% 46% 45% 45% 44%
Ac ua ial Fai ness 96% 131% 149% 132% 127% 124% 120%
DB e sus NDC
B eaks o wo k impac Baseline AW MNW 0.5 AW 0.75 AW 1.5 AW 2 AW 3 AW
Pu e DB plan
Replacemen Ra io 46% 46% 45% 50% 46% 45% 45% 44%
Ac ua ial Fai ness 96% 96% 131% 149% 132% 127% 124% 120%
NDC Plan
Replacemen Ra io 46% 46% 38% 39% 39% 39% 39% 39%
Ac ua ial Fai ness 88% 88% 84% 86% 86% 86% 86% 86%
31
Table 8 – Compa ison measu es sco es by p o ile (DB e sus DC)
Sou ce: Au ho ’s p epa a ion; No es: Pu e DB= he cu en Po uguese De ined Bene i plan; DC (o FDC) plan = Funded
Con ibu ion De ined Plan; Measu e sco es de ined on sec ion 3.2.; AW-=A e age Wage, NMW= Na ional Minimum Wage.
The e is e idence ha he DC model is a pension design mo e a ac i e han he DB model in e ms
o sus ainabili y because i has shallow ac ua ial ai ness measu es o all p o iles. The eason is ha
he isk is wi hin he wo ke s. The 20% ac ua ial ai ness is due mos ly due o he di e ence be ween
he ac ua ial ac o used o con e he accumula ed con ibu ions in o an annui y and he expec ed
a e age li e ime o an indi idual a age 66.5 yea s. Like he NDC model, he eplacemen a io is
lowe o nons anda d wo ks compa ed wi h he Po uguese DB plan, and he edis ibu ion wi hin a
gene a ion is inexis en . Howe e , he mos signi ican ad an age o he DC plan is he con ibu ions
made by he axpaye s a e in es ed and consequen ly capi alised, and he con ibu ions unde he
NDC used di ec ly o pay he pension o he cu en pensione s. This has an impac o a ound 70%
inc ease on he ac ua ial ai ness measu e.
Fo he Swiss pension model, a eplacemen a io o 46% a ained o an a e age wo ke by changing
he minimum pension ac o o 1.65 (pa ame e o he Basic Plan).
Table 9 – Compa ison measu es sco es by p o ile (DB e sus Basic Plan+Cash Balance Plan)
Sou ce: Au ho ’s p epa a ion; No es: Pu e DB= he cu en Po uguese De ined Bene i plan; Measu e sco es de ined on
sec ion 3.2.; AW-=A e age Wage, NMW= Na ional Minimum Wage.
The e is e idence ha he Swiss model is be e compa ed wi h he DB Po uguese model by sco ing
high on all measu es. The eplacemen a io measu es a e highe o lowe ea nings han o highe
ea nings. The ac ua ial ai ness measu es a e signi ican ly be e compa ing wi h he DB Po uguese
model, and he e is a be e equilib ium be ween eplacemen a io and ac ua ial ai ness measu es.
Fo highe ea nings, he eplacemen a io is lowe compa ed wi h he Po uguese DB plan because
o he maximum pension limi on he basic pension.
B eaks o wo k impac Baseline AW MNW 0.5 AW 0.75 AW 1.5 AW 2 AW 3 AW
Pu e DB plan
Replacemen Ra io 46% 46% 45% 50% 46% 45% 45% 44%
Ac ua ial Fai ness 96% 96% 131% 149% 132% 127% 124% 120%
Floo O se Plan (DC)
Replacemen Ra io 46% 46% 38% 39% 39% 39% 39% 39%
Ac ua ial Fai ness 20% 20% 20% 20% 20% 20% 20% 20%
Baseline AW MNW 0.5 AW 0.75 AW 1.5 AW 2 AW 3 AW
Ac ual DB Plan
Replacemen Ra io 46% 46% 47% 53% 48% 43% 40% 35%
Ac ua ial Fai ness 97% 97% 139% 164% 140% 117% 101% 77%
Swiss Plan - Basic Pension+Cash Balance
Replacemen Ra io 46% 46% 50% 60% 51% 40% 37% 32%
Ac ua ial Fai ness 66% 66% 109% 147% 107% 65% 51% 30%
32
Fo he Poin s Sys em, a eplacemen a io o 46% a ained o he a e age wo ke by changing he
pension alue o 16.75 eu os.
Table 10– Compa ison measu es sco es by p o ile (DB e sus Basic Plan + Poin s Sys ems)
Sou ce: Au ho ’s p epa a ion; No es: Pu e DB= he cu en Po uguese De ined Bene i plan; Measu e sco es de ined on
sec ion 3.2.; AW-=A e age Wage, NMW= Na ional Minimum Wage.
The esul s o he poin s sys em pension models a e iden ical o he DB Po uguese plan o all
p o iles excep o he highe ea nings because o he ceiling, bu his also gi es he possibili y o
highe -ea ning p o iles o sa e he excess in a p i a e pension scheme.
In summa y, somehow all models we e be e o han he ac ual DB Po uguese model in e ms o
ac ua ial ai ness measu es, bu in e ms o adequacy, he DB Po uguese model is sligh e be e
han he o he models excep o he Swiss model o lowe ea nings p o ile and he a e age wo ke .
Could we change he pa ame e s o he DB Po uguese model o imp o e he ac ua ial ai ness and
keep he same eplacemen a io o a e age wo ke s?
The answe is yes. By se ing up highe acc ual a es o he 1
s
ie om 2.30% p.a. o 2.50% p.a. and
lowe acc ual a es o he 3
d
ie , 4
h
ie and 5
h
ie om 2.20%, 2.10%, 2.00% o 2.00%, 1.50% and
0.75%, espec i ely.
Table 11 – Compa ison measu es sco es by p o ile (Ac ual DB e sus DB wi h new pa ame e s)
Sou ce: Au ho ’s p epa a ion; No es: DB= De ined Bene i plan; Measu e sco es de ined on sec ion 3.2.; AW-=A e age
Wage, NMW= Na ional Minimum Wage.
Changing he DB plan o highe a es o lowe ie s and lowe a es o highe ie s would imp o e
he ac ua ial ai ness le els o highe p o ile ea ne s and he edis ibu i e le els wi hin gene a ions
bu s ill wi h e y high ac ua ial ai ness measu es p oducing an unbalance scena io be ween
con ibu ion (in lows) and bene i (ou lows) o he model in he long e m. The eplacemen a io
dec eased o highe ea nings p o iles om 5 o 10 basis poin s. Wi h hese pa ame e s o he DB
plan, he eplacemen a io measu es a e like he Swiss models, bu he ac ua ial ai ness measu es
o he Swiss models a e s ill conside ably lowe han he DB model as shown in he igu e abo e
making he Swiss model much mo e a ac i e.
DB e sus Poin s Sys ems
B eaks o wo k impac Baseline AW MNW 0.5 AW 0.75 AW 1.5 AW 2 AW 3 AW
Pu e DB plan
Replacemen Ra io 46% 46% 45% 50% 46% 45% 45% 44%
Ac ua ial Fai ness 96% 96% 131% 149% 132% 127% 124% 120%
Poin s Sys ems
Replacemen Ra io 46% 46% 45% 46% 46% 31% 23% 16%
Ac ua ial Fai ness 97% 97% 131% 131% 131% 100% 100% 100%
Ac ual DB e us new DB (di e en pa ame e s)
B eaks o wo k impac Baseline AW MNW 0.5 AW 0.75 AW 1.5 AW 2 AW 3 AW
Pu e DB plan
Replacemen Ra io 46% 46% 45% 50% 46% 45% 45% 44%
Ac ua ial Fai ness 96% 96% 131% 149% 132% 127% 124% 120%
Pu e DB plan - new acc ual a es
Replacemen Ra io 46% 46% 47% 53% 48% 43% 40% 35%
Ac ua ial Fai ness 97% 97% 139% 164% 140% 117% 101% 77%
33
Table 12 – Compa ison measu es sco es by p o ile (DB wi h new pa ame e s e sus Cash Balance)
Sou ce: Au ho ’s p epa a ion; No es: DB= New De ined Bene i plan; Measu e sco es de ined on sec ion 3.2.; AW-=A e age
Wage, NMW= Na ional Minimum Wage.
The eason o lowe eplacemen a io o he Swiss plan is he limi o he Basic Pension as he
igu e below illus a es.
Table 13 – Replacemen Ra io by sub-Plan (Swiss model= Basic Pension + Cash Balance)
Sou ce: Au ho ’s p epa a ion; No es: Basic Plan= De ined Bene i ype plan; Replacemen Ra io de ined on sec ion 3.2.; AW-
=A e age Wage, NMW= Na ional Minimum Wage.
Based on he abo e, he e is e idence ha he Swiss model is a be e s a o an op imal model
wi h a be e balance be ween eplacemen a io and ac ua ial ai ness. The nex ques ion o suppo
us on he ques o an op imal model would be: Wha is he eason o he Swiss model o be be e
o han he o he models?
The Swiss model in eg a ed wi h wo sub-models, he i s model a DB plan (Basic Plan) and a second
model a cash balance plan. Bo h sub-models complemen each o he . The igu e below shows he
eplacemen a io and ac ua ial ai ness measu es sepa a ely o each sub-model.
Table 14 – Measu e sco e o Swiss plan (Basic Pension + Cash Balance)
Sou ce: Au ho ’s p epa a ion; Basic Plan= De ined Bene i ype plan; Measu e sco es de ined on sec ion 3.2.; AW-=A e age
Wage, NMW= Na ional Minimum Wage.
The cash balance alone would beha e exac ly like he DC o NDC pension models wi hou
edis ibu ion wi hin he gene a ion and wi h lowe eplacemen a ios compa ed wi h he DB
Po uguese model. The sub-model Basic pension (DB ype o model) in oduced by he Swiss model
inc eased he eplacemen a io and p o ided he e ibu ion ea u e impo an o any social
secu i y co e age. These wo sub-models combined as a single model ha e be e measu es as he
DB plan and all o he models alone o wi h a minimum pension gua an ee.
DB e sus Cash Balance
B eaks o wo k impac Baseline AW MNW 0.5 AW 0.75 AW 1.5 AW 2 AW 3 AW
Pu e DB plan
Replacemen Ra io 46% 46% 47% 53% 48% 43% 40% 35%
Ac ua ial Fai ness 97% 97% 139% 164% 140% 117% 101% 77%
Basic Pension + Cash Balance
Replacemen Ra io 46% 46% 49% 58% 50% 41% 38% 34%
Ac ua ial Fai ness 47% 47% 81% 109% 79% 48% 38% 22%
Swiss Model
Replacemen Ra io Baseline AW MNW 0.5 AW 0.75 AW 1.5 AW 2 AW 3 AW
Basic Plan 23% 23% 27% 35% 27% 18% 15% 11%
Cash Balance 23% 23% 22% 23% 23% 23% 23% 23%
To al 46% 46% 49% 58% 50% 41% 38% 34%
Swiss Model
B eaks o wo k impac Baseline AW MNW 0.5 AW 0.75 AW 1.5 AW 2 AW 3 AW
Basic Plan
Replacemen Ra io 23% 23% 27% 35% 27% 18% 15% 11%
Ac ua ial Fai ness 95% 95% 223% 319% 220% 116% 82% 30%
Cash Balance
Replacemen Ra io 23% 23% 22% 23% 23% 23% 23% 23%
Ac ua ial Fai ness 19% 19% 19% 19% 19% 19% 19% 19%
40
A e o he models be e o han he DB model o applied by he Po uguese old-age pension
scheme?
- All models (NDC Plan, Swiss plan, DC plan, and Poin sys ems) had an impac on he pension
en i lemen as he DB Po uguese plan. The losses a y be ween 2% o 37% o he baseline
scena io and be ween 3% o 49% o he con e gen scena io.
How should be he Po uguese pension scheme design o i wi hin he con ex o he u u e o wo k?
- The eplacemen a io and ac ua ial ai ness used o measu e he pe o mance o he models.
The eplacemen a io indica ed he adequacy o he pension model and he ac ua ial ai ness
shows he ai balance indices be ween he con ibu ions and he bene i s as well as he
dis ibu i eness le els o he pension model. The esul s show e idence ha all ou models used
in he s udy ha e be e measu es ha he Po uguese DB plan.
- The s udy shows ha he pe o mance o he models based on he wo de ined measu es is
easily adjus ed by ine- uning he pa ame e s o he model. The DB Po uguese model would
imp o e he ac ua ial ai ness le els o highe p o ile ea ne s and he edis ibu i e le els wi hin
gene a ions by se ing up highe acc ual a es o he 1
s
ie om 2.30% p.a. o 2.50% p.a. and
lowe acc ual a es o he 3
d
ie , 4
h
ie and 5
h
ie om 2.20%, 2.10%, 2.00% o 2.00%, 1.50%
and 0.75%, espec i ely. Ne e heless, s ill wi h e y high ac ua ial ai ness measu es p oducing
an unbalance scena io be ween con ibu ion (in lows) and bene i (ou lows) o he model in he
long e m.
- The combina ion o he “BD+DC” models and he “DB+NDC” ha e he same eplacemen a io,
bu he ac ua ial ai ness is di e en since, unde he NDC plan, he sa ings a e no capi alized.
The s udy shows e idence ha by capi alized he con ibu ions wold dec ease be ween 65% o
70% he ac ua ial ai ness measu e.
- The “Swiss” model was he mos balanced model wi h a be e equilib ium be ween he
eplacemen a io and ac ua ial measu es. The Swiss models based on a DB bene i (Basic Plan)
plus a Cash Balance plan. Fu he mo e, he Swiss model ob ained be e adequacy measu e o
nons anda d wo ke s by changing he basic plan o a ge bene i . The a ge bene i designed
based on he a e age pensionable sala y and no dependen on he pensionable se ice. The
pension en i lemen loss unde he basic scena io o lowe ea nings is 10% wi h 15 yea s o
mul iple in e up ion se ice compa ed wi h he 25% o he ac ual DB plan. Fo highe ea nings,
he loss would a y be ween 15% o 20% bu s ill mus mo e accep able compa ed wi h he cu en
pension Po uguese model. The esul s a e also mo e sa is ac o y o he con e gen scena io
whe e he loss o highe ea nings p o ile is be ween 25% o 27%, and o lowe ea nings p o iles
would be lowe han 25% wi h 15 yea s mul iple b eaks compa ed wi h he loss o 49% o he
cu en DB model.

41
Based on he empi ical esul s summa ized abo e, we concluded he ollowing:
1) All s andalone pension models a e alike ela ed o adequacy le els (i.e. wi h he same
eplacemen a io measu es) by adjus ing he pa ame e s— he di e ence be ween he
models ound in he sus ainabili y le els and he espec i e ac ua ial ai ness measu es. The
Cash Balance, DC and NDC plans a e no edis ibu i e wi hin he same gene a ion, and in
gene al sco e lowe in e ms o ac ua ial ai ness measu es compa e wi h DB plan and
sys ems poin s, bu his depends on he pa ame e s. The DC o Cash Balance ha e be e
measu es ela ed o ac ua ial ai ness since he con ibu ions in es ed and consequen ly
capi alised. The DB plans e icien ly designed o in oduce he edis ibu i e ea u e wi hin
gene a ions and inc ease he adequacy le el o lowe -ea ning p o iles.
2) A s andalone pension model pe o ms wo se han a mul iple pension model. A model
should ha e a leas wo sub-models wi h di e en ypes – Be e idge and Bisma ck models.
The in eg a ion o he wo models would inc ease he adequacy and sus ainabili y le els.
3) The Bisma ck and Be e idge model complemen each o he and inco po a ing hese wo
models in o a single model wi h he op imal pa ame e s would p o ide he ou main
p inciples o a pension model – po e y elie ; edis ibu ion, insu ance and consump ion
smoo h.
4) Mul iple models wi h a leas wo ie s could be mo e adequa e o nons anda d wo ke s;
howe e , he i s sub-model DB plan should no be linked o he pensionable se ice like a
Pu e Be e idge model – a la bene i and he second plan should be like a Bisma ck plan.
5) The con ibu ions o he second- ie model bene i s should be in es ed - his has a
dec easing e ec o a ound 65% o 70% on he ac ua ial ai ness measu e.
6) A ma hema ical app oach should be aken in analysed he pa ame e s o a pension model,
and maybe his esumes o an op imisa ion p oblem o ind he op imal pa ame e s o
pension model - Wha a e he bes pa ame e s o each model in o de o maximise he
eplacemen a io and minimise he ac ua ial ai ness?
7) The pa ame e s should be co ela ed wi h he economic and demog aphic ac o s – he
main d i e s o he sus ainabili y o he pension model;
The pension model could be u he imp o ed o nons anda d wo ke s by emo ing he ix
e i emen age ( ha was used as an assump ion) and le he indi idual decided he age o e i emen
based on he p og ession o he adequacy o he old-age pension en i lemen , and open he
possibili y o pa ially ecei ing he old-age pension ins ead ull pension and con inue o con ibu e
o accumula ed es ed igh s in o he u u e.
Ha ing in mind he objec i es o he s udy, p opose a new design o a pension model wi hin he new
con ex o u u e o wo k, he main ecommenda ions based on he conclusions o he s udy, would
be as ollows:
42
Pape conclusion Recommenda ion change o he
i s - ie model o he public
pension model
E ec
1. The Bisma ck and
Be e idge model
complemen each
o he ;
2. Mul iple models wi h
a leas wo ie s
could be adequa e
o nons anda d
wo ke s;
3. The con ibu ions o
he second- ie
model bene i s
should be in es ed
Change he ac ual single DB plan o
a mul i-model wi h he i s model
o be a la bene i (pu e Be e idge
plan) wi h a eplacemen a io
a ge be ween 35% o 40% and a
second model o be a Cash Balance
plan wi h a minimum gua an ee
e u n a e. The ax paid by he
pa icipan membe s edis ibu ed
be ween he wo models, i.e., pa
o he ax paymen would be o
sponso he la bene i , and he
o he amoun in es ed as a o m o
a con ibu ion o he Cash Balance
Plan.
This measu e would imp o e he
ai ness ela ed o he link be ween
he con ibu ions and bene i o he
model and he adequacy le els o
he nons anda d o m o wo k.
4. A ma hema ical
app oach should be
aken in analyzing
he pa ame e s o a
pension model;
5. The pa ame e s
should be co ela ed
wi h he economic
and demog aphic
ac o s
The pa ame e s o he model should
be based on a ma hema ical
“op imal” p oblem. Es ablished an
objec i e pension based on he
adequacy and ai ness measu es,
and ind ou he pa ame e ha
maximizes he objec i e unc ion.
The pa ame e s should be s ongly
co ela ed wi h demog aphic and
economic ac o .
This measu e would imp o e he
obus ness o he pension models
agains demog aphic and economic
shocks.
In Po ugal, mos o he discussions ha e been a ound pa ame e s o he cu en DB pension model.
Howe e , he e a e al eady some in es iga o s/p o essionals o he pension ield like B a o ha a e
challenging he pension p o essionals o s a o ha e a di e en pe spec i e on Po uguese pension
model and open he doo o o he be e al e na i es o he se ious p oblem acing he ac ual pension
model. The p oblem o he cu en DB model is a ques ion o adequacy and sus ainabili y, and he e
a e al eady a ew s udies showed a be e pa h o a pension model in Po ugal. The successi e
go e nmen s ha e been pos poning he edesign o he pension model Po ugal because he p oblem
is no immedia e. Howe e , he e o m is ine i able, and he change om a DB o mul iple models
including a Bisma ck plan will be necessa y no only because he ac ual DB plan is unsus ainabili y bu
also because o new s anda ds o ms o wo k.
Finally, i is impo an o s ess ha his pape ocused only on he old-age isk co e age, bu he e is
also an u gen need o edesign and e hink he o he p o ec ion co e ages p o ide by he Po uguese
social secu i y as such as unemploymen , sickness and disabili y co e age o he non-s anda d
wo ke s.
43
6. LIMITATIONS AND RECOMMENDATIONS FOR FUTURE WORKS
The simula ion pe o med on he cases s udies we e unde a limi ange o assump ions and based
on an ac i e male membe , bu he changing he assump ions on e u n on asse s o he DC plan,
he mo ali y able as well o he assump ions could a ec he esul s o he pension models, and his
is a limi a ion o his s udy.
In his s udy, we also no men ioned he impac o he Gende , longe i y, and he homogenei y
ac o s on he models, and he e o e, how should be a design o a model o inco po a e all hese
ac o s and o be ai o all ci izens – s anda d wo ke s, nons anda d wo ke s, emales wo ke s,
males wo ke s, Blue colla s wo ke s and whi e-colla wo ke s.
In espec o ecommenda ion o u u e wo ks, he s udy shows some e idence ha by changing he
ac ual DB pension plan in Po ugal o mul iple models wi h DB plus DC ype would imp o e he
adequacy and sus ainabili y le els o all wo ke s inclusi e nons anda d wo ke s. Howe e , his
ansi ion will no be possible wi hou a de ailed plan design o his ansi ion. Pa o he ax
con ibu ions o he sub-DC plan is dis ibu ed indi idually, he e o e, educing he le el o
edis ibu ion be ween gene a ions. The sho ness o axpaye s o pay he cu en pensione s would
p o oke a dis up ion on he sus ainabili y o he al eady agile Po uguese DB model. The e o e, his
should be a u u e s udy o conside how o ansi ion om a DB plan o o he plan design wi hou
dis epu e all he pension sys em in Po ugal.
Ano he s udy would be pe o ming a ma hema ical s udy o ind ou a model ha could calcula e
he op imal pa ame e s o he di e en possible models o minimise he ac ua ial ai ness measu es
as well as he po ion o alloca ions o he con ibu ions o each sub-model in case o a mul iple
pension model.
Finally, his pape showed e idence ha mul iple models wi h wo sub-model p o ides be e
adequacy, sus ainabili y and dis ibu i eness measu es bu would be wise o analyse he beha e o
he mul iple models wi h mo e han wo models.
44
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47
48
8. ANNEXES
Annexe 1 – Pension Models and Unemploymen Insu ance in Po ugal
The Po uguese DB model
The calcula ion o he pension bene i (P) in he Po uguese ea nings- ela ed public pension scheme
based in he ollowing acc ued bene i o mula a e i emen age:
 =    
Whe e RE is he Re e ence Ea nings, A he acc ual Ra e and SF he Sus ainabili y Fac o . The
e e ence ea nings a e calcula ed by a e aging mon hly ea nings o all yea s o co e age up o 40
yea s, adjus ed acco ding o he consume p ice index (CPI). The Acc ual a es a y om 2% o 2.3%
depending on he indi idual ea nings ela i e o he alue o he IAS (Indexan e dos Apoios Sociais)
as ollows:
Re e ence
Ea nings/IAS
≤ 1.1
>.; ≤.
>.; ≤.
>.; ≤.
>8.0
Acc ual Ra e
2.3%
2.25%
2.2%
2.1%
2.0%
Fo a gi en alue o RE, he co esponding pension o mula is as ollows:
RE/IAS Pension Fo mula a No mal Re i emen Age
≤ 1.1
 =  2.3%    
>.; ≤.
 = (1.1   2.3% + (−1.1)  2.25%)   
>.; ≤.
 = (1.1   2.3% +0.9 2.25% + (−2) 2.2%)   
>.; ≤.
= (1.1   2.3% + 0.9 2.25%+ 2.2%  2 + (−4) 2.1%)   
>8.0
 = (1.1   2.3% +0.9 2.25% + 2.2%  2 + 2.1%  4
+ (−8) 2.0%)   
No e: N = Numbe o con ibu ions yea s
The sus ainabili y ac o is a demog aphic ac o designed o adjus pension bene i o longe i y
changes. This ac o calcula ed on an annual basis by di iding o e all popula ion li e expec ancy a
age 65 in 2000 and he one eco ded in he yea be o e he pension claim:


=℮
:
℮
:
The con ibu ions o inance he old-age bene i based on he cu en con ibu ions schedule in
Po ugal, i.e., o a s anda d wo ke is a o al combined con ibu ion (employe plus employee) o
34.75% which 20.21% inances old-age bene i (ssa.go ). Fo a non-s anda d wo ke (assumed o be
sel -employed) is 29.6%, and we es ima ed o be 17.21% o sponso old-age bene i based on he
p opo ion o he con ibu ion o a s anda d wo ke .
49
The NDC model (inspi ed by he Sweden Model)
The NDC model analysed on his s udy is based on he cu en Sweden Model, whe e he p ima y
pension en i lemen came om a No ional De ined Con ibu ion supplemen ed by a small po ion o
a Funded De ined Con ibu ion (FDC). The old-age pension en i lemen om he NDC model based
on he ollowing o mula:


=   

The No ional Accumula ed Balance is acc ued based on he ollowing o mula:
   = 

(1+

)



Whe e, 

, indi idual e e ence ea nings in yea i, and c is he con ibu ion a e. The no ional capi al
is inc eased each yea by he no ional in e es a e, assumed o be 2% p.a..
The no ional ac ua ial annui y ac o AN a age e i emen age es ima ed based o he mo ali y able
as de ined in sec ion 3, and a hypo he ical discoun a e o 3.00% p.a.
The old-age bene i is supplemen ed by a de ined con ibu ion plan, wi h lowe con ibu ion a es, and
whe e he pension en i lemen is calcula ed by di iding he accumula ed con ibu ion a e i emen
age by he expec ed u u e li e ime a e i emen age, 

, o es ima e a pension bene i a e i emen
age:


=



The accumula ed con ibu ions a e i emen age is as ollows:


= 

(1+

)



Whe e, 

, he capi aliza ion o he con ibu ions based on a e u n a e o 3.00 p.a. The o al
pension en i lemen o he NDC model is as he sum o he wo pensions desc i ed abo e, i.e.
= 

+

The con ibu ions o inance he old-age bene i o he NDC model:
Con ibu ions Ra e ( c ) S anda d wo ke Non-S anda d Wo ke
NDC Plan 17.71% 14.71%
DC Plan 2.50% 2.50%
To al con ibu ions unde NDC model 20.21% 17.21%