Brazil’s Pension Reform

According to the International Labor Organization (ILO), just over 10% of the Brazilian population is 60 years old or above.

However, Brazil’s pension spending is equal to that of countries where 25% of the population belong to the same age range.  

Projections predict that, over the next 45 years, population ageing in Brazil will be twice as fast as that experienced by developed countries. The 60-and-older age group may grow by 10% to 20% in only 25 years, while it took 50 years in developed countries.   

As a result, the deficit of the pension system has increased every year, and reached R$ 290 billion in 2018, its highest level in history. The graph below shows the evolution of the deficit in the last twelve years: 

The business community has shown great interest in the pension reform, as its implementation could reduce economic uncertainties and reassure foreign investors. Measures like raising the minimum retirement age and applying transition rules for a shorter time-period are viewed as fundamental to attract more investments. Estimates point to a levelling of the 2011 record, when an inflow of US$ 101 billion in FDI was registered (compared to about US$ 85 billion in 2018). 

Content of the Reform

The retirement rule is based on the 85/95 formula, i.e. the sum between the age and the contribution time for men (95 points) and women (85 points). According to Statute #13.183/15, nowadays there is no minimum retirement age required and the minimum contribution time to receive the entire benefit is 35 years for men and 30 years for women. 

Highlights

The project of the pension reform structured by Jair Bolsonaro’s economic team in the Proposed Constitutional Amendment #287/19 establishes a minimum retirement age of  65 for men and 62 for women to start receiving retirement benefits. Nowadays, the maximum allowable benefit granted by the National Institute of Social Security (INSS) for retirement equals R$ 5.839,45. After the reform, to have access to 60% of this amount (the minimum established), a worker will have to contribute 20 years to the pension system. Also, to have access to the maximum allowable benefit, 40 years of contribution will be required. The Minister of the Economy, Paulo Guedes, affirmed that the reform’s implementation will lead to savings reaching more than R$ 1,16 trillion in ten years.

Rules of Transition

In order not to impair those who have already entered the labor market for a considerable amount of time, the pension reform introduces three rules of transition imposed on the private and public sectors to be chosen by every worker.  

Transition 1 – Contribution time + age: 

This rule will be applied to those intending to claim for the maximum allowable benefit only. It is similar to the current formula: men must obtain a total of 96 points and women 86 points. For those selecting this rule, the minimum contribution time is 35 years for men and 30 years for women. Each year, one point will be added to the sum for both genders. Men and women will respectively need to attain 105 points and 100 points by the end of the transition period.  

Transition 2 – Contribution time + minimum age

This rule will be applied to workers opting to claim for either a percentage of or the full maximum allowable benefit. The minimum retirement age will be raised to 65 years for men and 62 years for women after the transition period. Half a year will be added every year over 2019-2027 (8 years) for men and 2031 for women (12 years) to the initial minimum retirement age of 61 years for men and 56 years for women. In 2022, at the end of Bolsonaro’s mandate, the minimum retirement age will have been raised to 62.5 years for men and 57.5 years for women. 

Transition 3 – Contribution time

This rule will be applied to workers who are two years or less away from attaining the current minimum contribution time (35 years for men and 30 for women). They can choose this transition rule – with no minimum age required – based on the welfare factor measured by the Brazilian Institute for Geography and Statistics (IBGE), which takes into consideration the worker’s life expectancy after retiring.  

Retirement Regimes

The Brazilian pension system is divided into four separate regimes: the private urban regime, the private rural regime, the federal public servant regime and the military regime.  

  • The private urban pension regime is the largest as it includes all Brazilians working for the private sector and contributing to the pension system in the urban areas.  
  • The private rural pension regime encompasses close to 10 million people who live in rural areas and applies more flexible rules as most workers in this sector start working at a young age. 
  • The federal public servant pension regime covers the Federal government staff’s retirement benefits.  
  • The military pension regime, which handles the military’s pension benefits, includes special rules for members of the armed forces who do not contribute to the pension system, and join the reserve and do not technically retire.  

With the pension reform, differences between the regimes will be maintained insofar as the minimum retirement age will be adapted in accordance with the professional activity. The rural worker will be able to retire at the age of 60 and contribute to the pension system for a minimum of 20 years. For police and prison officers, as well as for teachers, the retirement criteria are also different. For all special regimes, the minimum retirement age will be the same for both genders. 

The proposal also offers a mechanism to adjust the minimum retirement age based on the increase in life expectancy. The idea is that the adjustment would be made every four years since the life expectancy of the share of the Brazilian population aged 65 or above will gradually improve.

Comparison to Temer’s Reform proposal

Bolsonaro’s proposal is very similar to the one presented at the end of 2016 by Brazil’s former President Michel Temer. Temer, who made pension reform one of his government’s flagship projects, faced mounting resistance against the proposal and was unable to gather enough votes for its approval by the House of Representatives.

In his first address to the National Congress as President, Bolsonaro affirmed that his government was preparing a “modern” and “fraternal” pension reform, which would favor a great impulse towards the improvement of Brazil’s economic environment. In parallel, Davi Alcolumbre, President of the Senate, recently stated that “Congress has to, democratically, listen to the Brazilian people, debate and deliberate. The government has already decided, Congress will debate and also make its decision.” 

The differences between Temer’s and Bolsonaro’s pension reform projects are presented in the table below: 

  Michel Temer  Jair Bolsonaro 
Minimum retirement age 65 years

For men under the age of 50 and women under the age of 45*
65 for men
62 for women 
Transition regimeFor men over the age of 50 and women over the age of 45*
A 50% time-rate added to the period left to attain the contribution time of 35 years for men and 30 years for women* 
Three options open to individual choice:

Contribution time + age   

Contribution time + minimum age
 
Contribution time 

* Age or time left when the reform is approved.  

Leave a Reply