Portugal is a popular destination for many its great places to visit, Portuguese food, and festivals in Portugal. However, foreigners retiring to Portugal should first check whether the Portuguese pension system works for them.
Claiming a pension in Portugal is possible in theory for all working residents in the country, regardless of whether you’re Portuguese or not. However, certain conditions apply, and the amount pensioners receive varies.
If the Portuguese pension system doesn’t cover you, it may be possible to access or transfer an international pension to Portugal. This is possible through an offshore pension scheme, for example. Read on to find out about:
- The Portuguese pension system
- Who is eligible for pensions in Portugal?
- Pensions in Portugal for expats
- Portuguese pension rates and contributions
- Supplementary pensions in Portugal
- Non-contributory pensions in Portugal
- Other pensions in Portugal
- Applying for your pension in Portugal
- Pension advice in Portugal
- Useful resources
Looking for expert advice on retiring in the Portuguese sun? Then speak to the professionals at Holborn Assets. Their advisors can help with all aspects of retirement planning, from pension transfers, access to UK state pensions, wills and legacy planning, and much more. If you're retiring in Portugal, get the most out of your golden years with a free financial review from Holborn Assets.
The Portuguese pension system
The Portuguese pension system is one of the most generous in the world. The OECD’s 2017 Pensions at a Glance report identified the country’s average 95% pension contribution to be the fifth-highest out of its 35 member countries.
The Portuguese pension system consists of a state pension scheme that’s provided by the government, alongside much smaller voluntary occupational and private pension options.
The Portuguese state pension falls into two categories:
- An earnings-related, social security contribution-based pension. This covers everyone in the Portuguese workforce who makes a certain amount of contributions.
- A means-tested, minimum-rate social pension. This is for those who haven’t participated in the workforce or haven’t made sufficient social security contributions.
This pension links payments to life expectancy and indexes them to consumer price index changes. It also covers self-employed workers, as long as they’ve made the necessary contributions while they’ve been working.
Only a small percentage of the population have voluntary occupational or private pensions in Portugal. However, many expats who retire to Portugal can transfer private pensions via international schemes.
Who is eligible for pensions in Portugal?
Pension age in Portugal
In 2019 and 2020, the official retirement age in Portugal is 66 years and 5 months.
To plan for a slowly aging population and increasing life expectancy, the Portuguese government plans to continue adjusting the retirement age in line with life expectancy statistics. The pension age is due to reach 67 in 2029.
It is possible to retire early in Portugal from the age of 55 if you’ve made at least 30 years of contributions. However, payments lessen for every extra year you receive payments.
It’s also possible to defer your pension in Portugal until you reach 70. For each year you defer, your pension payments increase.
People in certain circumstances are able to retire early without having reduced payments, such as:
- being in long-term involuntary unemployment
- specially-protected professional activities
Under the Portuguese pension system, long-term unemployed workers can only apply for early retirement at the end of their unemployment benefit. Those who don’t receive this allowance and have been unemployed for more than one year don’t typically have the right to early retirement.
Unemployed people who received benefits can retire and claim their Portuguese pension at 62. This is possible if they’ve paid at least 15 years of social security contributions while they worked and were at least 57-years old when they lost their job. If they paid at least 22 years of social security and were fired when they were 52 or over, they could claim their pension from 57.
However, those who access their pension before they turn 62 are subject to penalties, typically in the form of lower pension payments (link in Portuguese).
Read more about the implications of retiring in Portugal.
Who can claim a state pension in Portugal?
To qualify for a contributions-based old-age pension in Portugal (link in Portuguese), you must have worked and paid social security in Portugal for at least 15 calendar years. These don’t have to be consecutive, however.
Working a full calendar year means you must have worked for at least 120 days within that year. Any years where you worked for less than 120 days can be combined to count as a full calendar year.
Foreigners have an equal right to claim a pension in Portugal. However, they need to have made the necessary contributions for at least 15 years.
It’s the employer’s responsibility to register workers and ensure that their pension contributions are sufficient. You’ll need to apply for a Social Security Identification Number (Número de Identificação da Segurança Social) and make sure you give this to your employers. You’ll need this number when you claim your Portuguese pension or if you want to claim any other social security benefits.
If you’re self-employed, you’ll need to sort your social security number and contributions for yourself.
Pensions in Portugal for expats
If you’re planning to retire in Portugal as an expat, check if any treaties are in place with your home country. These could affect what taxes you need to pay and where. Your home country may also have restrictions for transferring a pension abroad or rules regarding any inheritance.
Portugal has tax treaties with EU member countries, as well as social security agreements with some non-EU countries. Social security agreements enable foreigners to avoid double taxation on their pension payments. Once you reside in Portugal, you’ll typically only be subject to Portuguese taxes, which may be lower than in your home country.
Portugal taxes residents on their worldwide income. As a result, a private pension from a foreign country may also be liable to Portuguese taxes. It may be possible to transfer private pension earnings without incurring charges via an offshore pension scheme.
QROPS: transfer and consolidate your UK pension
Expats moving abroad from the UK may be able to transfer their pensions into a Qualified Recognized Overseas Pension Scheme (QROPS). QROPS allows expats to consolidate their pensions into one plan. This helps manage retirement funds more easily while avoiding currency fluctuations.
There are many advantages to QROPS. However, they’re not suitable or available to all British pensioners. Consider taking advice from an expert financial adviser such as AES.
Non-habitual residency in Portugal
In a bid to attract foreign pensioners, the Portuguese government offers the option for foreigners to apply to live in Portugal as a non-habitual resident (NHR). This is Portugal’s tax-free pension scheme, which allows foreigners to take pension income under favorable tax arrangements.
First introduced in 2009, the scheme has proved popular, with a report in February 2019 claiming that 9,589 pensioners benefit from it.
Those granted NHR status receive a tax exemption on all forms of taxable income they receive from abroad. This includes pensions and lump-sum withdrawals for up to 10 years.
By claiming a tax-free pension in Portugal, some foreigners can manage considerable tax savings, particularly if they benefit from a double-taxation scheme. Consult an expert to ensure there are no negative implications.
If you moved to Portugal from another EU country, your collective social security contributions can count towards qualifying for a pension in Portugal.
For EU citizens and long-term residents, every member country where you worked and made contributions for at least one year can count towards qualifying for an old-age pension in each country. Typically, this is at a pro-rata rate for only the years you worked.
You start receiving these pension payments once you reach the legal retirement age in each country, so the amount you receive may vary if these retirement ages are staggered. You need to make an application for a Portuguese pension with the CNP through the Seguranca Social (Social Security).
Portuguese pension rates and contributions
Earnings replacement payments under the Portuguese state pension are relatively high, at approximately 69% of earned income. However, average earnings in Portugal are fairly low in comparison to other EU countries; they reportedly sit at €17,521 a year.
The Portuguese state pension rates depend on earnings and prior contributions. Portugal’s pension rates varying from 30–92%.
The minimum contribution-based pension rate is €286.76 per month with 15–20 years of contributions. It increases to €316.45 per month with 20–30 years of contributions. Finally, it increases to €395.57 per month with contributions for 31 years or more.
Social security contributions towards the state pension are around 11% of an employee’s wage. Employers contribute an additional 23.75%. This includes contributions towards survivor and disability pensions. For public sector workers, pension contributions amount to a minimum of 3%. The contribution rate for those who are self-employed is 29.6% of earnings.
Portuguese pension funds pay out monthly with additional payments in July and December. This means that pensioners receive 14 pension payments per year.
Supplementary pensions in Portugal
In addition to the Portuguese state pension, private pensions are also available in Portugal. There are voluntary occupational plans through your employer, as well as the option for personal savings.
Occupational pension plans are fairly uncommon and cover only 3.7% of the Portuguese workforce. Only 1% of companies in Portugal operate their own pension plan.
Most company pensions use a pension fund arrangement. Alternatively, some smaller companies use an insurance-based scheme.
Pension fund societies manage the pension funds in Portugal. They are either closed funds (limited to a single employer or a small number of employers, usually linked to a trade union agreement) or open funds (where external pension plans invest funds).
The Portuguese government regulates pension fund investments. A maximum equity exposure of 55% and a maximum 60% investment in bonds applies.
Tax on pensions
The government allows 25% of employee contributions to private pensions in Portugal to be tax-deductible. Employer contributions are tax-deductible up to 15% of salary. However, future payments from a pension fund in Portugal are taxable if contributions have been tax-exempt.
If contributions are taxed, only the interest earned on the original contribution is taxed as pension income.
Some small- and medium-sized companies use direct insurance schemes rather than pension funds. These are either endowment funds or group annuity contracts. The tax treatment is the same as for pension funds.
Non-contributory pensions in Portugal
Portugal also has social old-age pension funds. These pension funds are means-tested. This is a pension for those with minimum resources who have no coverage under any contributory scheme.
To qualify for this pension, you must have been a resident in the country for at least three years and your monthly income must be less than 40% of the social pension benefit rate for a single person or 60% of the social benefit rate for a couple. This equates to single people earning an income of €171.54 or less per month, or €257.34 or less a month as a couple.
The social old-age pension in Portugal pays out at a flat-rate of €210.32 per month. There is also a supplement of €18.31 for those aged up to 70, and €36.60 for those older than 70 years. Long-term care supplements are also available, if necessary.
Other pensions in Portugal
A survivor’s pension in Portugal is paid out to a spouse or children under 18 years (or under 27 years if studying, or no limit if disabled) if the deceased was receiving or entitled to receive a contributory-based, old-age, or disability Portuguese pension.
Social security considers a number of relationships for this fund, such as:
- Spouse and former spouses
- Someone who lived in an identical situation to that of a spouse for a considerable time (e.g., two years)
- Descendants, including newborn and fully-adopted children
- Ascendants for whom the deceased beneficiary was responsible if no spouse, former spouse, or descendant is entitled to the same pension
The survivor’s pension in Portugal amounts to 60% of the deceased’s pension. It amounts to 70% if there is a divorced spouse who is also eligible. In 2019, the widow’s pension is €126.19 per month.
The orphan’s pension in Portugal is 20% for one child, 30% for two children, or 40% for three or more surviving children. Additional benefits may be available for surviving parents or grandparents.
The total amount of benefits paid out cannot exceed 100% of the deceased’s pension. In exceptional cases, 110% may be paid out where a divorced ex-spouse is also entitled to a survivor’s pension.
A funeral allowance may also be awarded to family members of the deceased beneficiary who are entitled to the survivors’ pension with no requirement for a qualifying period.
Disability pension in Portugal
An invalidity pension – or disability pension – is for employees who are confirmed permanently unfit to work due to a non-occupational cause. A disability pension in Portugal pays out if the recipient made total contributions of at least three years (for full disability) or five years (partial disability).
Social security calculates the rates for this pension in the same way as an old-age pension. There is also a means-tested social disability pension for those who don’t qualify for the contribution-based pension.
A long-term care supplement is also available for social security pensioners who are dependent for meeting their basic daily needs. Social security considers the degree of dependency when calculating the amount of payment or support necessary.
Applying for your pension in Portugal
If you’re a taxable resident of Portugal, you should automatically receive your Portuguese pension once you reach retirement age.
If you plan on retiring early or deferring your retirement, consult the Centro National Pensoes (CNP). You’ll need to present your Social Security Number and fill out a number of official forms when you want to start claiming your pension.
Pension advice in Portugal
You should always seek professional advice from a financial adviser or local pension office. As an expat, seek advice in all countries where you might have a pension. Consider consulting an international advisor to ensure you maximize your pension income and avoid unnecessary taxes.
If you’re eligible for a Portuguese state pension, you’ll start receiving it automatically once you reach the state pension age. It may be possible to begin claiming it earlier or defer and receive it later – but you’ll need to contact the social security authority.
If you have a workplace or private pension, allow yourself plenty of time to contact your pension provider. Being timely ensures you start receiving income once you’ve retired.