New law on social security rules for retirement and disability

The President of the Republic has published, following approval by the Council of Ministers, Decree Law No. 187/2007 establishing the legal rules of the general social security regime concerning retirement and disability. The decree constitutes a fundamental tool for the implementation of Law No. 4/2007, which sets out the general bases and principles of the social security system.

In order to establish the legal rules for the general regime of social security concerning retirement and disability, the Ministry of Labour and Social Solidarity (Ministério do Trabalho e da Solidariedade Social, MTSS) proposed a draft bill No. 187/2007 (in Portuguese, 278Kb PDF). The Council of Ministers approved the new legislation on 8 March 2007, which was then published by the President of the Republic, Aníbal Cavaco Silva, on 26 April.

Financial sustainability of social security system

The decree law takes into consideration the Agreement on Social Security Reform (Acordo sobre a Reforma da Segurança Social (in Portuguese, 156Kb PDF)) (PT0608019I) signed on 10 October 2006 by all of the social partners with the exception of the General Confederation of Portuguese Workers (Confederação Geral dos Trabalhadores Portugueses, CGTP). It also underlines Law No. 4/2007 (Lei de Bases da Segurança Social), which the socialist majority in parliament approved on 14 December 2006, against all of the opposition parties (PT0701019I). The latter framework law, published on 16 January 2007, establishes the general principles of the social security system.

Decree Law No. 187/2007, which was due to come into force on 27 May 2007, defines major changes particularly in relation to estimating retirement benefits, including the measures set out in the 2006 Agreement on Social Security Reform. The aim is to improve the financial sustainability of the social security system and to guarantee that it will remain public and universal.

Changes in calculating value of pensions

Up to now, the following three different ways of calculating the value of pensions were in force: taking account of the 10 best years of earnings from the last 15 years of the career; assessing the lifetime career of contributions; and considering a proportional formula weighing up the previous two situations, with different weights for the periods before and after 2001. The benefit that the worker was entitled to receive was the highest amount which resulted from these three forms of calculation.

However, with the enforcement of Decree Law No. 187/2007, the retirement benefit of workers who entered the social security system before 2001 will be calculable only on the basis of the proportional formula, while the retirement benefit of those who entered the system after 2001 will consider lifetime contributions.

Another new feature of the decree law is the introduction of a sustainability adjustment factor in the calculation of future pensions, which is based on the individual period of social security contributions. This adjustment factor is derived from the relationship between the average life expectancy observed in a defined reference year and the average life expectancy observed one year before the due date of the pension.

Benefit reductions with early retirement

These measures are combined with a flexible system where it is possible to choose between the following two options: to delay the receipt of retirement benefits past full retirement age – that is, after 65 years of age – with special incentives; or to begin receiving early retirement benefits at the age of 55 years, with the condition of having 30 years of contributions, although the benefit will be reduced. Compared with previous legislation, Decree Law No. 187/2007 stipulates a greater reduction in the latter case; previously, a benefit reduction of 4.5% applied for each 12 months of early retirement but this has now increased to 6%. However, the new law maintains the previous rule which guarantees that the worker is entitled to a reduction of one year in the age of retirement for each three years of contributions exceeding 30 years.

Increased disability benefits

Another important change concerns disability benefits. These will increase and the minimum sum will be equal to the higher value of the minimum pension, which currently stands at €354 a month.

Maria da Paz Campos Lima and Reinhard Naumann, Dinâmia