Brazil is currently discussing a project to reform its social security system. The topic is controversial, but most of the population agrees that a reform is necessary, although they do not agree with the current government’s proposal.
The social security system in Brazil is an exception compared to social security systems in developed countries and others in development. Most public social security regimes in other countries include a minimum retirement age. The Brazilian system pays high replacement rates — pensions in relation to active income — and does so at a much younger age. Although life expectancy in Brazil is slightly below average compared to other developing and developed nations, this difference does not justify a much lower retirement age. As it stands, the social security system is financially unsustainable.
Spending on social security rose from 4.6% of GDP in 1995 to 8.2% in 2016, despite the population still being relatively young. It is estimated that, under current rules, social security spending could reach nearly 17% of GDP by 2060 (20% of GDP including the public sector regime). The combined annual deficit of the social security regimes is close to 4.5% of GDP, substantially contributing to the overall government budget deficit.
Brazil will age rapidly. In 2015, the elderly dependency ratio was half the average compared to developed nations and other developing ones; by 2050, however, Brazil will be rapidly approaching the average and, by 2075, will be above average. The population aged 65 and older will more than triple in the next four decades, increasing from about 7.6% of the population in 2010 to 38% by 2050.
The proposal under discussion would include, among many other changes:
• Establishing a minimum age of 65 to request retirement (regardless of contribution time) and raising the minimum contribution time from 15 to 25 years.
• For those receiving more than the minimum pension, the calculation of benefits is altered. With the new formula, about 10 additional years of contributions would be needed to obtain the same benefit. The minimum pension amount will remain at the minimum wage.
The main criticism from the population is that the new rules would require workers to contribute for 49 years before they could retire with a full pension.
Source: OECD Policy Memo