Lisbon, Aug. 19, 2026 (Lusa) - Experts who have studied reforming the Portuguese social security system argue that the Social Security Financial Stabilisation Fund (FEFSS) should reduce its purchases of government debt, whilst also pointing out that the fund is used to lower the ratio.
In the report «Reforming Pensions in Portugal – Towards a Sustainable, Adequate and Fair System – A Contract between Generations», presented on Tuesday by the working group set up by the Government and to which Lusa had access, it is recommended that the FEFSS portfolio be diversified, specifically by «reducing the concentration in domestic public debt, in the interests of fiduciary duty, risk diversification and international best practice».
According to the experts, the concentration of more than half the portfolio in Portuguese government debt raises three problems, starting with «excessive exposure to a single sovereign issuer», which «runs counter to good diversification practices and exposes the fund to concentration risk and the risk of default by the State itself, precisely in the scenario in which the fund would be most needed».
There is also a problem of fiduciary duty, given that «when investment policy is subordinated to public debt management objectives — the fund is, in fact, a major creditor of the State, and the acquisition of national debt partially offsets the debt in the consolidated accounts —, the interests of the pension system's beneficiaries cease to be the overriding criterion, bringing the FEFSS closer to being an instrument of financial repression».
Thirdly, the experts identify a problem of financial performance, given that «the fund's growth has been based primarily on the absorption of surpluses and earmarked taxes, rather than on a real return that is consistently competitive with comparable reserve funds».
On this point, the working group emphasises that the FEFSS «has grown less through the return on its assets than through the absorption of balances from the Social Security System and earmarked taxes, and that its investment, predominantly in Portuguese government debt, produces a consolidation effect that reduces the public debt ratio».
According to the report, since its establishment, the FEFSS has recorded an annualised nominal rate of return net of transfers of around 3.93%, which, when deflated by the consumer price index, corresponds to an annualised real return of approximately 1.64% – a figure below that recorded by comparable reserve funds.
Over time, changes have been made to the composition of the portfolio, but currently, at least 50% must consist of Portuguese government debt securities or other securities guaranteed by the Portuguese State.
Experts also recommend, with regard to the FEFFS, that its management be kept separate from political influence by implementing a «model of autonomous professional management, with a governing body subject to ‘fit and proper' requirements, selected through a transparent process and assessed against measurable targets, thereby shielding the investment policy from discretionary interference».
Furthermore, they argue for the need to strengthen transparency and oversight, notably by requiring the public disclosure of the annual report containing audited financial statements, the investment policy and the code of conduct, and by considering subjecting the fund to appropriate sectoral supervision by the ASF (the national pension funds authority).
Another suggestion from the working group is to clarify the mandate and rename the fund; that is, to enshrine the primary purpose of the fund's use and its exclusive allocation to the payment of pensions, as well as to change the name to the «Public Pension Systems Reserve Fund».
According to the Ministry of Labour, at the end of last year, «the FEFSS portfolio was worth €42 billion (13.9% of GDP), which corresponds to the value of around 24.8 months' worth of pensions (more than two years)».
This portfolio «grew by €6 billion in 2025, thanks to contributions totalling €4.5 billion and investment returns of €1.5 billion (+3.92% return)», the same statement adds.
The FEFSS was established in 1989 and was used only once, in 1993, in the form of a loan that was fully repaid in the following financial year.
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