The impact of international migration on the Portuguese public pension system: a scenario analysis

Migration might constitute one possible pathway to mitigating the effects of the aging population on the financial stability of pension systems as migrant flows tend to present younger age-structures than their receiving countries. While this argument was proposed a few decades ago and subject to discussion ever since, there have only been a few empirical studies striving to assess the role of migration in the financial sustainability of public pension systems.

This article evaluates the impact of migration on the financial position of the Portuguese public pension system, focusing specifically on the old-age pension scheme between 2015 and 2060. The exercise takes into consideration factors such as trends in economic growth, productivity and labour qualification and compares the pension system financial balance with and without the migration input complementing the natural growth of the population resident in Portugal. Under various other assumptions, we are able to estimate the evolution of the old-age pension scheme receipts and expenses.

Our results suggest that the influx of immigrants - coupled with reduced emigration - not only serves to improve the functioning of the economy, ensuring its need for labour, but also contributes to the financial equilibrium of the old-age pension system.

As a word of caution, our exercise serves to show the sensitivity of the financial equilibrium of the old-age pension system. It is not a forecast of the evolution of old-age pensions.  The old-age pension system balances and the impact of migration depend on the economic scenario applied (high, low or historic economic growth) and on the extent of old age material protection provided by social policy. Accounting for the interplay between these dimensions is crucial if one wants to estimate the full effect of the population dynamics on the pension system.

Click here to go to the paper by José Alves, Daniela Craveiro, Maria Teresa Medeiros Garcia and Paula Albuquerque.