Country among those set to limit pensions spending by 2060

Portugal is among the group of countries that the Organisation for Economic Cooperation and Development (OECD) considers having scope to limit the increase in public spending on pensions by 2060, thanks to reforms already in place that are likely to mean further increases in retirement age.

In a report published on Tuesday, the organisation places the country in a group of nations that also includes Estonia and the Netherlands, which have “legislated to increase the retirement age” – linking future rises to gains in average life expectancy and which, according to the OECD, have thus ensured lower projected increases in spending on old age pensions.

Furthermore, the organisation states, in Portugal as in Greece and Spain the initial high ratio of pensions to salaries should so be reduced and remain in line with the projected European average of around 43% in 2060.

Finally, according to the OECD, Portugal is also among countries that may see a greater increase in the unemployment rate among older people, but with this group having an estimated per capita gross domestic product between 3% and 4% higher than other countries.

On the contrary, countries with projected increases in these costs are those with “particularly unfavourable demographics” such as Japan, Korea and Poland, the OECD states.

Overall, the OECD estimates that the increase in public sector pension costs should increase by 2.8 percentage points of GDP on average between 2021 and 2060, but warns of very sharp differences between countries.

The study also analysed spending on public health and long-term care, projecting this to increase by 2.2 points of GDP over the same period, with the projections based on a pre-pandemic scenario and assuming that any increase with the response to Covid-19 will be an extra cost.

The OECD also noted that Covid-19 had a “serious impact” on governments’ fiscal positions, raising public indebtedness by between 20 and 25 percentage points of GDP compared to a non-pandemic scenario in 2022.

Still, the organisation said, in the long term the direct budgetary impact of Covid-19 is very small in the face of historical pressures such as an ageing population and rising prices for services. According to the OECD, emergency budget transfers made during the pandemic contribute little to the long-term pressure, precisely because they are temporary.

Nevertheless, the organisation believes that all OECD countries will need to act to improve the public finances, while warning that this does not mean that taxes should be raised. That, it said is “only one of many paths” to meet this goal. In the case of countries with low debt, this could be increased, or health and pension systems be reformed.

It sees reforms such as increasing employment and encouraging longer working lives as “particularly desirable”.