Investors shy away from Pension Savings Plans with subscriptions plummeting 53%

Interest in private retirement ISA plans (PPRs) in Portugal has fallen drastically in Portugal by as much as 53% after years of being one off the most popular ways to create a retirement nest egg.

According to the Portuguese Supervisory Authority Insurance and Pension Funds (ASF) there has been a significant reduction in interest in the popularity of these products from families and small investors.

One of the main reasons for the lack of interest from investors in Retirement Savings Plans is related to the low levels of returns offered by these products – and despite the tax benefits they offer.

PPR returns have consistently been below inflation. This has been the case since at least 2014. In the last five and ten years, only one in 10 PPR funds has managed to beat its benchmark, offering its underwriters an average annual return of only 0.88% and 1.3%, respectively, which in real terms translated into losses in the investors’ portfolio, because these gains were below the inflation rate.

According to the most recent edition of ASF’s “Insurance Sector and Pension Funds Report”, published on November 4, the amount of annual subscriptions fell 53% in the last two years. In 2023, the total volume of premiums and contributions in PPRs hit their lowest point in the last decade, with the Portuguese investing only €1,7Bn, less than half the average recorded in the previous five years.

“The adverse climate in the financial markets and a lower savings capacity, motivated by a decrease in purchasing power as a result of high inflation, resulted in a significant decrease in the products,” explains the ASF in the report.

Among the most penalised are PPRs in the form of investment funds that, in the last two years to 2023, registered a 76% drop in the volume of annual subscriptions, from €1.6Bn in 2021 to €384 million in 2023, the lowest amount since 2018.

But PPR insurance, which accounts for more than 70% of the Retirement Savings Plans market, has not faired much better. Despite a lower drop (of 35%) in the volume of subscriptions by households between 2021 and 2023, PPR insurance ended last year with only €1.2Bn in new investments, the lowest amount since 2012.

Not even the year-on-year increase of 60% in the first 9 months of the year compared to the same period in 2023 to 1,148 million euros, according to data provided by the ASF to Diário de Notícias, are enough to break this downward trend.

The waining interest of investors in PRPs, which have existed since 1989, is also mirrored by the consecutive drop in the number of subscribers to these products. According to ASF data, since 2011 there has been a steady decrease in the number of PPR investors. Last year was no different, with the number of underwriters dropping 4.8% to around 2.1 million investors, the lowest since 2017.

The flight of PPR investors is particularly visible with PPR insurance: not only have there been four consecutive years of falling underwriters, but last year they had “the largest decrease recorded since 2020”, with the number of investors falling 6.8% to 1.6 million investors, it is the lowest figure since 2015 (the first year that there was detailed data on the number of underwriters per type of PPR).