Ageing and intergenerational transfers in Portugal

Portugal is one of the European countries where population ageing is most evident (see figure 1). Not only has the longevity of the population increased, visible in the increase in life expectancy at birth, but the fertility rate remains one of the lowest in Europe, well below the reference value for population renewal.

This ageing of the population creates intergenerational tensions, especially with regard to pension payments or health care costs. The younger generations feel that they will not have the same opportunities and protection as today's older generations. This perception may or may not be correct. It is also true that younger generations have benefited from greater protection and support during their first years of life than today's older generations. In addition, today's older generations will leave assets and resources to their successors.

For this reason, intergenerational transfers and their evolution over time are important. This analysis will allow a better knowledge of the reality and, as such, a better evaluation of the public policies that affect these transfers.

One of the central elements of the project is the consideration of a generation as an observation unit. Instead of the usual confrontation, at the same time, between young, less young and old, it is important to understand how transfers between generations are balanced throughout life. It is not difficult to recognize that in the initial moment of life, a generation mainly receives transfers from the generations that preceded it: health care and education, in the component of public expenditure, as well as consumption such as housing, clothing and food, as private expenditure, constitute transfers in favor of the new generation. Later, this generation will enter the labour market and produce wealth, and become a net contributor to the remaining generations, younger or older. At the end of life, the now older generation will be able to deconstruct wealth, and then will be able to receive transfers from the younger generations. Throughout this life cycle, a generation will experience different positions in terms of intergenerational transfers, in a pattern that is easy to recognize. 

What is not clear, nor easy to calculate, is whether the overall position of each generation in this process has changed substantially or not: will the generation born in 1960 be more recipient/net payer in terms of intergenerational transfers than the generation born in 1980? Is the evolution that has taken place in Portugal substantially different from that of other countries, such as neighboring Spain? If so, in what sense?

Understanding these intergenerational transfer mechanisms can lead to a greater capacity to create adequate public policies, thinking in terms of effects throughout the life cycle. Demographic changes are slow, and economic changes, economic growth and rising incomes tend to be more rapid. Their interaction generates intergenerational transfers that can be difficult to interpret. This knowledge can have the effect of mitigating possible antagonisms between different generations that coincide at the same time and, as such, increase the social cohesion of Portuguese society.