Social Security Fund proposes lowering pension adjustment threshold to 2%

[Photo: Lynzy Valles]

The Social Security Fund (FSS) presented a proposal to optimize the pension adjustment mechanism during a plenary session yesterday with the Standing Committee for the Coordination of Social Affairs, receiving unanimous support from both employer and employee representatives.

The proposed changes are designed to help elderly residents maintain their purchasing power as the cost of living rises, while also ensuring the long-term financial health of the pension system.

Currently, the government only reviews whether to raise the old-age pension when the cumulative inflation rate reaches 3%.

The problem with this trigger is that it can take years for inflation to reach that level, meaning pensioners may go long stretches without any increase in their benefits while their cost of living continues to creep upward.

Under the new proposal, the trigger point would be lowered to 2%. This means that once the cumulative inflation rate – measured by the Composite Consumer Price Index, which tracks price changes across a wide range of goods and services – reaches 2% since the last adjustment, the government would review whether to increase pensions.

This lower threshold would allow for more timely adjustments, helping retirees keep better pace with rising prices.

In addition, the government wants to establish a flexible procedure to ensure that pensions are reviewed at least once every three years, preventing the system from stalling during long periods of very low inflation.

To inform these proposed changes, the FSS commissioned the University of Macau in 2025 to conduct a study on how the pension adjustment mechanism could be improved.

The study confirmed that the current method of using the Composite Consumer Price Index as the main reference is reliable and fair, as the index provides a broad picture of how prices are changing across society, including the goods and services that elderly people typically purchase.

The researchers concluded that it is appropriate to continue using this index rather than switching to a different measure.

However, they recommended lowering the trigger from 3% to 2%, taking into account Macau’s recent inflation trends and the need for a more responsive system.

One idea that was carefully examined but ultimately rejected was the proposal to directly link the full pension amount to the Minimum Subsistence Index – the basic income level considered necessary to cover essential needs like food, housing, and healthcare.

On the surface, this idea might sound appealing, as it would guarantee that every retiree’s pension would always be at least enough to survive on.

However, the study’s financial assessment concluded that such a link would be risky for the long-term health of the pension system.

If pensions were automatically tied to the minimum subsistence level, the FSS would be forced to increase payouts more rapidly, draining its financial reserves much faster and ultimately undermining the system’s sustainability for future generations.

For now, the government has decided against this approach, instead sticking to the current principle that the pension, together with an existing Senior Citizen Subsidy, provides a basic level of protection without creating an automatic financial commitment that could jeopardize the system.

Moving forward, the FSS says it will continue to closely monitor price changes and overall economic conditions. When the conditions for an adjustment are met, the fund will prepare a formal proposal, seek input from the Standing Committee for the Coordination of Social Affairs, and recommend specific adjustment amounts.