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• Currently, 90% of employers offer company cars, but a tax squeeze could prompt some to close their schemes.
• Portugal used to have one of the world’s most generous social security systems, but 2007 reforms put more
responsibility for retirement provision onto individuals and employers.
• Few employers offer a flexible benefits plan, but recent tax hikes could persuade them to introduce such schemes to control costs.
• The number of organisations that offer health insurance as a benefit has jumped in recent years, and 84% of
employers now provide the perk.
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Austerity measures are having a big impact on benefits provision in Portugal, with employers seeking to save costs and revise their strategies, says Jenny Keefe
Portugal’s benefits managers are feeling the heat – and not just from the blazing Mediterranean sun. In November, the country’s socialist government approved an austerity budget that aims to cut its huge deficit by slashing spending and boosting tax revenue.
This means staff can expect slimmer pickings on perks. Pedro Amorim, a principal at recruitment agency Hays in Portugal, says: “The recent tax increases will impact both directly and indirectly on benefits, and are likely to result in them being reduced. Organisations are trying to reduce and control costs, for example by reinforcing mobile phone and fuel policies and not extending health insurance to family members.”
A breakdown of a typical Portuguese reward package begins with company cars, offered by 90% of employers, according to Mercer’s 2010 Total remuneration survey. But the government’s decision to increase tax on company cars and allowances may put the brakes on this. “Employers are questioning the benefit’s value and are already starting to withdraw cars for those who do not travel as a core part of their role,” says Amorim.
Health insurance
Portugal’s second most popular perk is health insurance, provided by 84% of employers, according to Mercer’s research. Schemes usually cover hospital and outpatient treatment, as well as dental and eye care. Nuno Abreu, senior consultant at Towers Watson in Portugal, says: “Major medical care coverage has increased in recent years, with mainly multinational companies offering the benefit.”
Surprisingly few Portuguese employers run flexible benefits schemes, but this could change. Paulo Fradinho, a principal at Mercer’s Lisbon office, says: “Economic recession, frozen salaries and bonus taxation have led companies to innovate on benefits and find more tax-efficient perks. Although flexible benefits schemes are rare, some [organisations] are considering this approach to control or reduce costs. Early adopters are including social benefits such as a pension plan, health and life insurances and kindergarten benefits, because these have maximum tax efficiency.”
Portugal has a traditionally generous social security system, so employees have not valued pensions as highly as British staff do. Mercer’s survey shows only 33% of employers have a scheme in place, but this is beginning to change after reforms in May 2007 introduced a partial ceiling for pensions.
Towers Watson’s Abreu says: “Pension plans have being growing slowly since the 2007 changes, and we expect the market to grow substantially. The trend is to switch from defined benefit to defined contribution schemes or to launch DC when a scheme is introduced for the first time.”
But as the clouds hover over Portugal’s sovereign debt, the country’s benefits managers will be watching the euros for some years yet. “The outlook for the economy is not good,” says Abreu. “Employers are cutting benefits costs by negotiating with providers or launching more sophisticated solutions, such as flex. They are also using the communication around benefits to ensure staff understand the cost.”
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Read more on international reward and benefits