The State Budget for 2026 (OE 2026) anticipates an overall Social Security surplus of around €6.6 billion, in stark contrast with a budgetary surplus of only €600 million for the Public Administrations as a whole. This discrepancy raises important questions about the economic and financial meaning of each of these balances. The surplus of the Public Administrations is straightforward: it reflects a lower net borrowing requirement for the State, meaning fewer debt issuances to cover expenditures. The Social Security surplus, however, requires more careful interpretation, as it stems largely from budgetary transfers from the State financed through taxes or public debt and not solely from the system’s own revenues.
This surplus results from the difference between effective revenue (social contributions, State transfers, capital income and other revenue) and effective expenditure (pensions, social benefits, subsidies and administrative costs). In 2026, total projected revenue amounts to roughly €49 billion, of which €10 billion (around 28–29%) comes directly from the State Budget. This amount exceeds the entire Social Security surplus, meaning that without these transfers the system would display a significant structural deficit.
It is true that the labor market has shown greater dynamism, with rising contributions from both workers and employers. However, this revenue growth also implies greater future liabilities: every new contributor is, potentially, a future beneficiary. If the present value of future obligations exceeds the increase in contributions, then the system is not improving; on the contrary, it is deteriorating.
Portugal is undergoing a rapid demographic transition: birth rates remain low, life expectancy continues to rise, and the working-age population grows only due to immigration. This imbalance between active workers and pensioners places growing pressure on the pension system. Despite employment reaching record levels, the number of pensioners continues to rise, threatening medium- and long-term sustainability.
It is also important to stress that the Social Security balance does not include pension expenditures from the Caixa Geral de Aposentações (CGA), which manages the pensions of civil servants admitted before 2005. In 2025, the CGA deficit is around €9 billion, fully covered by the State Budget. This expenditure is not reflected in the Social Security accounts, yet it remains a substantial burden on public finances. In addition, contributions from new civil servants now flow into Social Security rather than the CGA, further distorting the interpretation of the Social Security surplus.
For all these reasons, it is misleading to interpret the positive Social Security balance as an indicator of financial soundness. When the public pension system is viewed in an integrated way considering both Social Security and the CGA, Portugal emerges as one of the most vulnerable countries in the European Union.
In 2025, total State expenditure on pensions and social benefits is expected to reach approximately €45 billion, about 15.5 percent of GDP. This places Portugal among the countries with the highest budgetary effort in this domain, alongside France (15.8 percent), Italy (16.2 percent) and Spain (14.9 percent). In contrast, countries with more capitalized systems, such as Sweden (10.5 percent) or the Netherlands (11.2 percent), show significantly lower percentages. The positive balance forecast for 2026 reflects primarily the unexpected increase in the working-age population and the low level of unemployment. In that sense, it is a favorable short-term sign, but it should not be mistaken for an indicator of structural sustainability or for a budgetary margin within Social Security that could be spent on current pensioners.
Interpreting the Social Security surplus requires caution. Heavy reliance on public transfers and mounting demographic pressures pose serious challenges. Ensuring the system’s future viability will require structural reforms, a redesign of the pension model, greater autonomy for the social protection system, diversification of funding sources and effective policies to promote birth rates.
It is crucial to highlight that the Social Security balance does not include pension expenditures from the Caixa Geral de Aposentações (CGA).
João Borges de Assunção, Professor at CATÓLICA-LISBON