Immigration and pension system in Portugal

The Portuguese Pension System is submitted to two risks. Over the period 2005-2050, a decrease of the workforce and an increase of old-age persons are eminent, which provide a doubling of the dependency rate. So, the system is not financially sustainable in the medium and long terms and it is expected that the system will enter in a growing deficit in 2015, when expenditures will overcome the revenues. Hence, the system is subject to a demographic risk (associated with the reduction of the fertility rates, the augmentation of the life expectancy and the increase of the dependency rate) and to a financial insolvency risk (motivated by the lack of equatorial correspondence between expenditures and revenues). Immigration could be a solution to the unsustainability of the pension systems. This paper examines the role of the immigration on resolving these two risks. We investigate, based on the European Economy (2006) projections about the impact of ageing on the public expenditure for the period 2005-50, the required immigrant flows that maintain the old-age dependency rate observed in 2004, and we calculate also the number of immigrants required to promote a null financial result for the Portuguese Pension System. We conclude that the number of immigrants that guarantees a null financial result is much lower than one that eliminates the demographic risk. Compared with the European Economy forecasts (2006), the number of immigrants required to guarantee the solvency of the Portuguese pension system is substantially higher and show an upward trend during the period under review contrary to the expected trend announced by that European entity.