A look at what guaranteed capital pension Savings Scheme (PPR) is, what it covers, and when it makes sense

At a glance

  •  ‘Guaranteed capital’ does not mean ‘guaranteed return’. With many of these products, the return depends on profits, which can vary from year to year and may even be zero.

  •  The point at which the guarantee takes effect is crucial: some guarantees are in place at all times, while others only apply when the policy matures. In the latter case, early withdrawal may result in a return of less than the initial investment.

  •  The insurer provides the guarantee: unlike the guarantee fund for deposits, there is no guarantee fund here.

  •  The guarantee is nominal: for example, €10,000 yielding 1% per annum would amount to €12,202 after 20 years. With an average inflation rate of 2% per year, this sum has the same purchasing power as €8,212 today.

A guaranteed capital PPR is a Pension Savings Scheme in which the management company undertakes to return the invested amount under the conditions set out in the contract. While it protects the nominal value of the savings, it does not protect their purchasing power.

This article addresses three questions that are rarely considered when purchasing this type of product: what is covered by the guarantee, when does it apply, and who is responsible for the costs?

What is a guaranteed capital pension savings scheme?

As a rule, a capital-guaranteed pension savings scheme is a pension savings scheme set up in the form of life insurance that is not linked to investment funds. When you take out a plan like this, you hand your money over to the insurer, who invests it in a separate portfolio within their accounts known as the autonomous fund. The majority of the assets in this portfolio are bonds and other low-risk investments. In return, the insurer undertakes to repay at least the initial investment, in accordance with the terms set out in the contract.

The key difference compared to a PPR fund, for example, is who bears the investment risk:

  •  In a capital-guaranteed PPR insurance policy, this risk lies with the insurer: if the portfolio yields less than was promised, the insurer will cover the difference from their own resources. In return, the yield tends to be stable, albeit low, and may be zero in some years. In real terms, it may even be negative after adjusting for inflation.

  •  In a PPR fund, there is no such guarantee. The value of the units fluctuates daily in line with market performance. Participants bear all the risk in exchange for the potential for higher returns.

What exactly does the capital guarantee cover?

The guarantee applies to the accrued capital, not just the amount initially invested. Accrued capital is the total amount invested, plus any returns that have already been credited to the policy. Once allocated, these returns are guaranteed to remain part of the capital and cannot be lost in subsequent years.

The practical effect is simple. Consider a product that offers a guaranteed return of 3% in the first year, followed by 1% in each of the second and third years. An investment of €10,000 will amount to €10,507.03 by the end of the third year. This is the guaranteed value on that date, not the initial €10,000.

Where does the return originate from?

The term ‘guaranteed capital’ describes a product feature, but does not explain how savings are remunerated. There are a number of ways to go about this, and a single contract may combine more than one:

  •  Guaranteed capital, with no guaranteed return: the return depends entirely on profit-sharing, which may be zero or subject to an annual cap.

  •  The guaranteed rate only applies at the start: there is a guaranteed rate in the first year or the first few years, which decreases over time. After that, the return once again depends on profit-sharing.

  •  Rate set on a yearly basis: the insurer sets and announces the annual rate in advance, and this rate remains unchanged for the duration of the policy.

  •  Market-indexed rate: this is currently the most common option. The rate usually equates to a percentage of the Euribor, with minimum and maximum values specified in the contract. For example, the interest rate would be 2.20% in the first year and 65% of the average six-month Euribor in subsequent years, with a minimum of 1% and a maximum of 3%.

Guaranteed fixed rates, such as 2% per annum until the end of the contract, are virtually non-existent in new policies. It is mainly found in older policies.

Profit sharing: what does this mean in practice? It does not refer to a share of the insurer’s profits, but rather to the return on the investment portfolio to which your money has been allocated. This return is calculated on an annual basis according to the formula set out in the contract. If the portfolio yields 2% and the management fee is 2.5%, the profit sharing will be zero but will never be negative. The capital is preserved but does not grow.

Some policies allocate a percentage of the return and set an annual cap. For example, this may be set at no more than 3%. In such cases, you immediately know the maximum amount you can receive, but you are also limited to that amount.

Three important variables to check in the contract

None of these are usually mentioned in the sales pitch.

When does the guarantee apply?At all times. This means that the policy value can never fall below the amount of capital paid in. Or only at maturity, which means that the guarantee is only assured on the contract’s maturity date. These are two different products with the same label. The difference is shown on the ASF’s PPR comparison platform.

How much does the guarantee cover? Some products incur a subscription fee. In such cases, the guarantee may only apply to the actual investment amount, net of the subscription fee. With a fee of 0.5%, only €9,950 of your €10,000 will be invested. This may be the guaranteed amount rather than the full €10,000.

Is the rate gross or net? A "guaranteed 3%” net of charges is one thing, but a guaranteed 3% gross of charges with a 1% management fee is another. Some insurers state the rate before deducting charges, while others factor them in from the outset. Therefore, the same figure may represent different effective returns.

Which company provides the guarantee for a capital-guaranteed PPR?

It is the insurer that provides the guarantee. Many of these products are sold in bank branches under agreements between the bank and the insurer. In practice, the bank acts as an intermediary. The customer takes out the policy with their account manager at their usual branch. They receive statements in the same place as their current account and are left with the impression that they have a "pension plan from the bank”. They do not. They have a life insurance policy with a provider that may not even be part of the bank’s group. The guarantee is the responsibility of the insurer, and no one else.

It is not the state’s responsibility either: a PPR is not a deposit and is not covered by the Deposit Guarantee Scheme: the €100,000 protection per account holder and institution does not apply to life insurance, and there is no equivalent fund in Portugal.

What does exist is different. On the one hand, the ASF provides supervision and the insurer is obliged to ensure that the liabilities of its PPR are permanently covered by assets entered into a specific register. However, if the insurer is unable to fulfil its obligations, your claim takes absolute priority over these assets, ahead of almost all other creditors. While this provides strong protection, it is not absolute: a priority claim over assets does not guarantee the amount. Therefore, we recommend finding out the name of the insurer listed on your policy and considering the insurer’s financial strength to be just as important as the advertised rate.

The guarantee protects the capital. But does it protect purchasing power?

It does not. This is probably the least well-known limitation of this type of product.

The return on a savings product can be interpreted in two ways. The nominal return measures the change in the stated policy amount. The real return is the change in what that amount can buy. The capital guarantee applies to the former, but not to the latter, as it is not inflation-indexed.

Consider an investment of €10,000 in a product that yields 1% per annum during a period when the average inflation rate is 2% per annum. The value of the savings after 20 years is €12,202. In order to maintain the initial purchasing power, €14,859 would be needed. The accumulated amount is currently worth around €8,212.

The nominal balance has increased by €2,202. Meanwhile, purchasing power has fallen by around 18%. There has been no literal loss, and no statement can show this, because statements only show nominal values.

Both calculations are straightforward, so it’s worth knowing how to perform them. The cumulative value is calculated by capitalising the returns over the period:

€10,000 × (1 + 1%)²⁰ = €12,202

To obtain the equivalent value in terms of current purchasing power, divide this amount by the cumulative inflation over the same period:

€12,202 ÷ (1 + 2%)²⁰ = €8,212

This example does not take into account fees or taxes. Including them would make the result worse.

Although the calculation is illustrative, the trend is clear. According to an ECO analysis, capital-guaranteed pension savings schemes (PPRs) recorded a median return of 2.28% in 2025. This was below the inflation rate of 2.34%, and the plans lagged behind price rises over all three-, five-, and ten-year time horizons.

Who might benefit from a capital-guaranteed pension savings scheme (PPR)?

The purpose of a capital-guaranteed pension savings scheme is to preserve an existing sum. The most important factor influencing the decision is how much time remains until the expected payout.

  •  Less than five years. Protecting the face value is paramount, given the short timeframe available to recover from a loss in value. This is also the case for people who are just a few years away from retirement.

  •  Between five and ten years. The decision depends on the intended purpose of that capital. If a sum is earmarked for a specific expense, it justifies protection. However, savings intended to supplement a pension can be exposed to the market.

  •  More than ten years. The opportunity cost of the guarantee tends to outweigh its benefits. Over a thirty-year period, inflation is the main threat to savings.

Regardless of the term, this type of product may be suitable for those who cannot tolerate fluctuations in value. In practice, a policyholder who panics and redeems at the first sign of a fall in value will end up with a worse outcome than someone who opted for a conservative solution from the outset.

On the other hand, it is not recommended for capital that may be needed for another purpose in the short term, since redemptions outside of the legal conditions incur costs. It is also not suitable for those who believe that ‘guaranteed capital’ means ‘risk-free’. The risk does not disappear; rather, it changes from market risk to the risk of inflation and insurer solvency. If the plan no longer matches the policyholder’s time horizon, transferring the PPR is an alternative to redemption.

PPR: speak to a specialist at Banco Carregosa

Founded in 1833, Banco Carregosa is the oldest Portuguese financial institution still in operation. It is supervised by both Banco de Portugal and the Portuguese Securities Market Commission. Our pension savings scheme (PPR) offering consists of one product without a guaranteed principal: the actively managed, globally diversified Sixty Degrees PPR/OICVM Flexível Fund. This is a deliberate choice. Rather than protecting the nominal value, the portfolio is designed to track the markets over the long term — including the associated fluctuations. Contact us to discuss any queries you may have with a specialist.

FAQs

Are there any risks associated with capital-guaranteed PPRs?

Yes. While the risk of a nominal loss is reduced under the terms set out in the contract, two risks remain: the first risk is that of a loss of purchasing power when the return achieved is outstripped by inflation; the second risk is that the insurer providing the guarantee may default, and this is not covered by any public fund.

Is a PPR with a guaranteed capital return covered by the Deposit Guarantee Scheme?

No, the scheme only covers bank deposits, including former pension savings accounts, up to the legal limit per depositor and per institution. A PPR insurance policy is a type of life insurance contract that is overseen by the ASF, with the insurer providing the guarantee.

Can a PPR with a guaranteed capital return yield zero return in a given year?

Yes, it can. For products where returns depend solely on profits, if the portfolio’s returns do not exceed the fees charged, nothing can be distributed. The guaranteed capital remains the same, but does not increase during that year.

Are there any costs involved in redeeming a PPR with a guaranteed capital return?

The answer depends on the reason for the redemption. In situations provided for by law, the return is taxed at an effective rate of 8%. Outside of these situations, the tax rate increases, potentially reaching 21.5%. Any amounts deducted for income tax purposes must be repaid, plus a 10% surcharge for each year since the deduction was made. This repayment is not deducted from the redemption amount; rather, it is added to the income tax bill for the year in which the redemption occurs. In some cases, a redemption fee is charged, as specified in the contract.

Are there any costs involved in transferring a pension savings scheme with a guaranteed capital return (PPR)?

There may be. While the law prohibits transfer fees for plans without a guarantee of capital or returns, it permits them for plans offering such a guarantee, up to a maximum of 0.5% of the transferred amount. Provided the funds are transferred to another pension savings scheme, the tax benefits already obtained are retained.

Disclaimer: This article has been prepared by Banco Carregosa for information and educational purposes only. Under no circumstances does it constitute an investment proposal, recommendation to purchase, or personalised financial advice. Investing in financial instruments carries risks, as well as the possibility of losing the invested capital. Past performance is no guarantee of future returns. You should consult your account manager or financial advisor before making any financial decisions.