Notional Defined Contribution Accounts: Application to Portugal

The amount of implicit debt is quantified in relation to the contributive regime that supports the old age pension scheme of the Portuguese Social Security and the notional defined contribution accounts system concept as a solution of financial sustainability of that regime is presented, without the need for altering the overall tax rules. In the management of the transition from a public defined benefit pension scheme to a defined contribution plan a series of theoretical principles are presented, namely, the data treatment, the acquired rights, the demographic deficits, benefits not financed and the distinct speed of conversion in the processes of such nature. The Swedish public pension system and its automatic balancing mechanism are characterized. Their underlying principles are applied to the Portuguese reality, essaying different speeds of conversion and distinct ways of computing the acquired rights. The results of the implicit debt, replacement rates, expenses and financial results of the new regimes are presented, based on a set of demographic and economic assumptions, provided by benchmark entities.