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In July 2000, a new Basic Law on Social Security was adopted in Portugal. While a number of reforms have been made aimed at improving the system's operation and ensuring its future finances, the basic state-managed nature of social security has not been changed. There are also new ways of involving the social partners in the management of the system. Trade unions and employers' organisations have differing views of the new legislation and of their role in managing social security.
A new Basic Law on Social Security (Lei de Bases da Segurança Social) was passed on 6 July 2000. The new law makes a number of changes aimed at dealing with the problems identified in an earlier government White Paper. This analysis found that the social security system falls far short of guaranteeing the wellbeing that society would like to see, and that there is a trend towards the development of serious financial problems in the system within the next 15 years.
The Basic Law on Social Security was passed by parliament thanks to the votes of the ruling Socialist Party (Partido Socialista, PS), with the support of the Portuguese Communist Party (Partido Comunista Português, PCP). The christian democratic People's Party (Partido Popular, PP) opposed the new law, due to the fact that it does not respond to the party's desire for a mixed public-private system.
Main points of the law
One noteworthy aspect of the new Basic Law is that it permits the continued existence of a public model of social security. In effect, the opening up of the system to the private sector was put off until later. This was also the case with the introduction of a ceiling on contributions - a level of earnings beyond which both employers and employees would be exempted from social security contributions. Despite this, there is a degree of openness in relation towards the issue of introducing a ceiling, given a government report which finds that such a measure would help ensure the financial sustainability of the public social security system, as well as a favourable opinion issued by a tripartite executive committee on which employers' organisations, trade unions and the government are all represented.
In addition to the fact that the state continues to be the sole manager of the system, the level of social security contributions paid by employees and employers remains unaltered under the new law. Complementary social security systems – particularly pension funds – will continue to operate on a purely voluntary basis.
The main innovations introduced by the new Basic Law are as follows:
- state retirement pension levels will no longer be calculated as a function of the best five of the last years of a recipient's contribution history. Instead, the whole of a person's contribution history will be taken into account and the resulting average will reflect the work income earned throughout the whole career, revalued to current levels;
- the date on which retirement begins is no longer set at 65 years of age – pension entitlement will now be based on the criterion of 40 years of contributions;
- benefits will progressively be extended to lone parents; and
- part of each employee's contributions (between 2% and 4%) will now serve to reinforce the capital of the Social Security Financial Stabilisation Fund (Fundo de Estabilização Financeira da Segurança Social, FEFSS) (see below).
However, it should be noted that the rules for people who are already in the social security system will continue to be those established by the previous law.
The law's new framework governing the social security budget provides for the creation of three "ring-fenced" subsystems that make no provision for any transfer of budgeted funds from one to the other:
- a social insurance area (the contribution-based scheme);
- a solidarity area (the minimum guaranteed income scheme - Rendimento mínimo garantido, RMG); and
- a social welfare area.
The sustainability of the system
According to the government, the existing social security system is fundamentally concerned with two issues: improving the social protection offered to current benefit recipients; and guaranteeing the same security to the contribution-payers who will benefit from the system in the future.
In the government's opinion, the financial sustainability that will ensure this system's viability is founded on the Social Security Financial Stabilisation Fund, which is managed by the Institute for the Management of the Social Security Capitalisation Fund (Instituto de Gestão de Fundos de Capitalização da Segurança Social IGFCSS). Under the terms of Executive Law nº 449-A/99, the Fund's objective is to create a security reserve fund that is capable of responding to adverse situations that may arise in the future. The Fund will thus receive between 2% and 4% of employees' contributions – according to Minister Ferro Rodrigues, this will add up to EUR 300 million by the end of 2000. In order to make the Fund's goals achievable, it is expected that the management of the capital that is placed in it will be subcontracted to approved financial entities. As the Minister puts it, the FEFSS constitutes "a cushion" for the social security financial system.
The government has committed itself to ensuring that by 2003 old-age and invalidity pensions will increase to EUR 200 per month for those who have made contributions into the system for between one and 15 years. Another promise is that the government will reinforce the fight against fraud and failure to pay contributions.
Social partners' views and participation
The new Basic Law introduces a number of measures that will stimulate social dialogue. In particular, it creates a Social Security Council (Conselho da Segurança Social), on which representatives of both trade unions and employers' organisations will have seats. In this way, the social partners will always be able to voice their opinion on this subject.
The social partners have reacted to the new Basic Law on Social Security in different ways.
The Confederation of Portuguese Industry (Confederação da Indústria Portuguesa, CIP) has contested the legislation. Its opposition is such that it has suspended its participation in the negotiating group that was created within the ambit of the tripartite Economic and Social Council (Conselho Económico e Social) for the purpose of accompanying the process. According to the chair of CIP, the new Basic Law goes against the confederation's fundamental principles.
Despite the fact that the Portuguese Confederation of Commerce (Confederação Portuguesa do Comércio, CCP) does not agree with the content of the Basic Law on Social Security either, it has not gone as far as CIP. It says that it will propose that the upper limits on individual retirement savings plans be either abolished or increased in order to provide an incentive for people to resort to alternative forms of social security. In addition, CCP is working to create a pension fund for the retail sector.
The General Confederation of Portuguese Workers (Confederação Geral dos Trabalhadores Portugueses, CGTP) says that the path being taken by the social security system is a positive one and that the system is therefore not in crisis. However, it is necessary for the government to adopt a responsible attitude that will make it possible to consolidate the positive steps that have already been taken, by initiating discussions on matters that will be important in the future.
The trade unions, and CGTP in particular, are critical of the current tendency towards "governmentalisation". They had already complained about the perceived low degree of representativeness of the Social Security Council, and have recently accused the government of governmentalising the bodies that manage the social security system and of restricting the availability of information about this management. The legally defined ways in which it is possible for the social partners to participate are limited to two institutions of national scope – the Institute for the Financial Management of the Social Security System (Instituto de Gestão Financeira da Segurança Social, IGFSS) and the IGFCSS (see above) - and the Regional Social Security Centres (Centros Regionais de Segurança Social, CRSS) . However, these are merely consultative bodies and, in reality, are purely formal in nature.
At its recent eighth congress (PT0005193F), the General Workers' Union (União Geral de Trabalhadores, UGT) stated that the social security system urgently needs to be reorganised in such a way as to ensure greater effectiveness, a higher degree of motivation, increased technical capability, reinforced supervision and inspection and the separation of the different regimes. According to UGT, it is essential that this reform lend substance to the participation of both employees' and employers' representatives, thereby putting an end to the current governmentalisation of the system's management. It thus feels that the social partners' participation in the management of the solidarity and social security system must be "unfrozen" and that the right of the system's beneficiaries to be informed and consulted must also be put into practice.
Commentary
Although in Portugal there is no tradition of the social partners playing any substantial role in the management of the social security system, some routes towards a greater degree of involvement in the decision-making process in this field are now open. This is now especially true of the partners' institutional involvement via the Social Security Council and of the possibility of their issuing a veto via the Council's executive committee. (Ana Isabel Almeida and Maria Luisa Cristovam)