Portugal’s Employment and Social Security Minister warns social security and pensions system not assured for the future

“Portugal has “shockingly high poverty levels”

Text & Photos: Chris Graeme

Portugal’s Minister of Employment and Social Security, Maria do Rosário Palma Ramalho has said that making the country’s State pensions system secure for the future was not a given as the opposition socialist PS party had suggested when it was in power.  

The minister, who heads one of the country’s largest government ministries which employs 25,000, gave a sober overview of Portugal’s challenging social situation with increasing poverty, homelessness, the elderly unable to afford life-saving medications, and rampant unemployment faced by Portugal’s university educated youth who were leaving the country in droves in search of higher wages and better job prospects overseas.

Addressing an exclusive group of business leaders at the American Chamber of Commerce in Portugal (AmCham) at the end of November, Maria do Rosário Palma Ramalho explained how the ministry covered a very broad range of activities and actions.

The employment lawyer said that in the past the ministry had been divided into two ministries – employment and social security – and admitted heading the now amalgamated ministries was a particularly interesting challenge since “I did not come from a political background, so I had a very different life before this adventure”.

Maria do Rosário Palma Ramalho gave an outline of what the ministry had achieved over the past seven months within the framework of current government policy and a political situation which is “very difficult as everyone recognises” she said in a nod to the problems over getting the State Budget for 2025 passed in parliament.

The university professor explained that questions linked to employment were of “great complexity”, particularly since the previous (PS party) administration had followed an “extremely strong ideological line” when it came to solving problems.

Portugal facing “shocking” poverty

The employment law expert highlighted Portugal’s poverty problem which required relief through government-led social campaigns.

“Our main goal is to achieve a balance between these aspects and if we can achieve that we’ll have a virtuous action plan”, she said, adding that this was not to say that the ministry was essentially a Ministry of the Poor, although “there is a lot of poverty, obviously”.

“If we have good employment policies, we’ll have less social needs and less need for direct social protection”, she said.

And admitted: “What we found when we took office was an extremely high social poverty risk rate with over 2.2 million Portuguese classified as poor (20% of the population) which is a shocking amount given Portugal only has a population of 10 million”.

“In terms of homeless figures, we have over 13,000 in Portugal, two years ago it was 10,000”, she said whilst admitting that “we discovered an unemployment rate of 6.1% which is considered full employment.”

However, Portugal’s youth unemployment rate was much higher at 23%, a situation made worse by the flight of young educated Portuguese overseas (three in every 10 young people) after completing their education.

“Worrying” gulf between minimum and average salaries

There was also a vast gulf between the minimum and average salaries earned in Portugal that was “extremely worrying”.

“The minimum salary has risen from €820 to €870 but the net average salary stands as €1,100 which is very worrying”, said Maria do Rosário Palma Ramalho.

We also found a Recovery and Resilience Programme (RRP) at a very low execution rate, problems with Santa Casa de Misericórdia de Lisboa – Portugal’s oldest charitable institution -, and other situations that were challenging”.

Earlier this year, Santa Casa was rocked by a series of scandals involving corruption, a €40,000 debt to an organised crime syndicate in Brazil  and inflated salaries paid to a bloated senior and middle management structure of no less than 40 managers – some of which had little or no responsibilities – at the institution.

Maria do Rosário Ramalho justified her decision to dismiss the institution’s director Ana Jorge and her team over their “total inaction” in the face of the dire financial situation at the institution and for not having a restructuring plan to reverse it, and also accused the ousted board of benefiting themselves with salary increases.

Ana Jorge was dismissed before completing a year at the helm of the charity, accused by the current government of “seriously negligent actions” that affected the management of the Santa Casa. Ana Jorge said she felt “mistreated” and denied accusations that she and senior management figures had “benefitted” from awarding themselves higher salaries.

From an international point of view, without mentioning the current existing wars, Portugal had seen an economic slowdown among its main (trading) partners, particularly Germany, which also inevitably indirectly impacted funds coming into the ministry.

“Naturally, the work of the Ministry of Employment is based on the government’s programme and we have outlined our policies in five main areas that touch upon employment.

“We have to promote the creation of wealth and this can only be done by supporting companies so that they can improve people’s salaries,” she said at a time when companies were facing a decline in order book figures as Portugal’s main European trading partners faced a cooling economy.

Renewing relations with social partners

In the areas of work and employment, social consultation had almost been forgotten by the previous government since they had a majority and didn’t feel they needed to negotiate with social partners and unions on what needed to be done.

“We didn’t have an absolute majority in parliament but we thought that talking to our social partners was something that we should do and after less than five months we managed to sign an agreement” she said.

The Government ratified the 2025-2028 Tripartite Agreement on Wage Appreciation and Economic Growth with social and employer confederations. The solutions achieved benefit workers and employers on a path to wage growth in terms of average and minimum wages.

As a result, the minimum wage will increase to €870 gross next year, which represents an increase of €50 – €15 higher than predicted by the previous Government.

This amount will be progressively increased to €920 euros in 2026, €970 euros in 2027 and to €1,020 in 2028.

Regarding the average salary, the goal is to raise this to €1,890 euros by 2028, bringing forward the target set in the government’s election manifesto by three years.

Tax incentives for companies

The agreement also includes tax incentives for companies that decide to increase wages, allowing them to deduct 50% of their expenses from these increases against their corporate income tax.

The goal, said the minister, was to close the gap between the amount of the minimum wage and the average wage.

The agreement also provided for tax exemptions for productivity premiums that do not exceed 6% of the annual base salary as a way to encourage productivity and competitiveness. This exemption would only be available for employers who had increased salaries that year.

The government has also re-launched the Permanent Commission for Social Action reaching an important agreement with almost all social partners with the exception of the General Workers Union (CGTP), and including the Portuguese Industrial Confederation (CIP) that had failed to support the previous PS government agreement.

Family Policy and valuing the Social Economy

The second area of intervention was Family Policy with action plans underway to increase the number of creches in Portugal, and has also approved a statute for the elderly, and has altered the status for informal carers.

The social economy is a priority area for the Ministry of Employment and Social Security – a sector that employs 300,000 people often as carers and nursing staff who are badly paid.

“Fortunately, we have lots of people who are carers who look after their patients within the home environment and these carers often receive nothing. These carers also need to take a break sometimes and should be recognised for the work they do”, she said without suggesting what concrete benefits would be introduced.

A third area of intervention was Poverty and within this scope the ministry has increased the solidarity complement for the elderly from June, and approved an action plan to fight poverty – ‘The National Strategy Action Plan to Fight Poverty 2022-2025.

This is a complement that enables people on very low pensions of €200-€300 per month to get an additional support so that they can attain a minimum income considered to be on the threshold of a dignified pension which will be €630.

The elderly will also get a co-participation from the government of 100% on the costs of medicines so as to avoid patients arriving at a pharmacy and having to choose between a medicine for diabetes and a medicine for high blood pressure thanks to the Solidarity Compliment for the Elderly or CSI.

There was also an update to pensions agreed at the end of November by 3.85% to reflect an increase of 2.6% in GDP and in line with the inflation rate, and starting from 2025.

“We have to value people that work in the social economy more. Portugal is a country with an aging population and we have to care for people who are dependent or have an incapacitating illness,” said the minister as the government prepares legislation to help finance the social sector of the Portuguese economy.

Portugal’s pensions system – is it sustainable?

Finally, the minister said that the government was facing the “elephant in the room” meaning the question of the financial sustainability of Portugal’s Social Security and Pensions system.

“We are worried about the future of the Social Security system as a service and our forecast for the future and our concern is a major one,” she said.

At the end of October, Maria do Rosário voiced her concern over the future of Social Security in the Portuguese Parliament and said that she was not as confident as the opposition PS party on it’s sustainability after the PS claimed Social Security was good to go for another 40 years.

“We have to take a hard look at the Social Security system without any hangups, and the path we will have to take will be difficult. We’re also concerned over the efficiency of the Social Security system and the need to bring it closer to and make it easier and more intuitive for citizens,” she said.

In July, the Commission for Social Security Sustainability was created by Order No. 9126/2022 of July 26, 2024 with the objective of carrying out “a green bill for the sustainability of the pension system, specifically with regard to pensions”.

The Commission for Social Security Sustainability joined forces with the Court of Auditors and the Council for Public Finances to undertake a thorough reform of the Social Security reserve fund or Social Security Financial Stabilisation Fund (FEFSS) and develop a model to guarantee the sustainability of the pensions system in Portugal.

Since its founding in 1989, its management has offered little added value to taxpayers, which is mirrored by an average annual real rate of return of only 2.2% over the past 35 years to June this year.

A riskier strategy for higher levels of return?

In fact, the FEFSS net rate of return on transfers stands at only 1.5%, a figure significantly lower than the inflation rate of 2.65% recorded in the same period.

The Commission came to the conclusion that a reform to the current model of management of the fund was necessary by adopting an investment strategy that would ensure higher levels of return.

Other findings in the report suggested the need to reduce the minimum limit of Portuguese sovereign debt, changing the debt limits of OCDE countries, including Portugal, increasing the investment limit in shares, and increasing exposure not covered by the FEFSS fund to non-Euro currencies, and finally adjusting (increasing) the investment limits on private debt securities, small cap company shares, and in venture capital funds.

The general lines of the recommendations of the “Green Book on the Sustainability of the Social Security System” reflect the idea that the future of the FEFSS depends on its ability to adapt to new economic realities and the implementation of an investment policy that balances prudence with profitability, depending on the objectives and time horizon for which it was designed in 1989”.

In other words make riskier albeit calculated investments designed to bring in greater yields for Portugal’s Social Security and Pensions system.

Overall, the central message from Portugal’s Minister for Employment and Social Security, Maria do Rosário Palma Ramalho, was that the government and the ministry believes that companies are essential partners in order to achieve a balance between economic growth, reinforcing social protection, and the sustainability of the social, welfare and pensions system. Whether this can be achieved given the current context of a cooling economy in the Euro Zone and the threat of tariffs from the incoming US Trump administration, remains to be seen.