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One of them is depicted in Chart 4.ĭefining “pension subsidies” as the difference under prevailing pension system rules between average benefits and average contributions by each income quintile of the population covered by the national household survey (PNAD), the distribution per income quintile of budget transfers from elsewhere to disburse on the overall pension deficit is displayed on the left side of Chart 4. “In 10 years, the reduction in pension deficits is estimated at 2.2 percent of GDP relative to the no-reform scenario, over the next 50 years this rises to 8 percent of GDP.”īrazil’s pension reform proposal is socially balancedīesides fiscal implications of the proposed pension reform, the World Bank Staff Note (2017)also reports results of some estimates of how Brazilian social groups would share the adjustment burden.

The World Bank Staff Note brings the results of a simulation of trajectories of estimated pension deficits with and without reform (Chart 3 – right side). The Federal Government bill of pension reform submitted to Congress last December proposes a reduction of both the set of future beneficiaries and aggregate replacement rates, while increasing the number of contributors. However, even if all of those “corrections” were to be made and the “photo” of pension balances improved, the “film” with the demographic dynamics would still be one of increasing fragility. References are also often made to the “social-assistance” nature of some of the spending items classified as pensions – for example pensions paid in rural areas with no requirement of proof of contribution. The same applies when one reckons the “tax” imposed on the return of workers’ assets by their mandatory partial allocation at low interest rates in investment funds managed by Brazil’s national development bank (BNDES). For instance, figures improve if one takes into account revenue losses stemming from payroll tax exemptions or any occasional recovery of payment arrears by employers. More benign assessments of Brazil’s pension system financial balances have been offered – some of them approached in the World Bank Staff Note (2017). Although infant mortality figures still dampen statistics of life expectancy of a person at birth to less than 65 in some regions, actual current life expectancy at retirement time allows for a longer period of benefits relative to the one of contributions for early retirees in those regions. This is especially the case of special regimes for certain groups of civil servants (teachers/professors, police and military).

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For instance, average effective retirement occurs relatively early since retirement with a full pension based on length of service before the statutory age (65 for men and 60 for women) is possible. The World Bank Staff Note (2017) highlights some peculiar features of the Brazilian system that help understand why it is such an outlier. On the other hand, added benefits paid by the two separate pension regimes – for private sector workers (RGPS) and public servants (RPPS) – as a proportion of GDP stand out as relatively high when matched with the still relatively low age-dependency ratio ( Chart 2 – left side).

A complimentary pillar of voluntary pension savings accounts has been gradually created. Either rules are eventually adjusted (to reduce benefits, raise contributions and/or lift retirement ages) or the pension system runs into increasing deficits and larger transfers from other parts of the public budget.īrazil is a high spender on public pensionsīrazil’s demographic evolution is taking place over a public system where payments of benefits have been proportionately high as compared to other countries. As such, for any given set of rules regarding contributions and benefits, the on-going demographic dynamics means that over time the pool of benefits therein is bound to get larger than the pool of contributions.

one in which benefits are paid according to some pre-defined formula regardless of the return of assets purchased, and according to factors such as the total of these contributions, number of years worked, age of retirement, previous wage benchmarks etc.īrazil has a mandatory, public defined-benefit pay-as-you-go pension system. Pensions systems can also be either of a “defined contribution” type, where a worker’s benefits depend on the stock of accumulated assets acquired with contributions and their rate of return, or “defined benefit”, i.e. Pension systems can be “pay-as-you-go” – where benefits of current retirees are paid out of the pool of contributions of current contributors – or “fully funded” – in which future benefits for current contributors are funded by the stock of assets purchased with their contributions and corresponding rates of return (for a primer on pension systems, see Acosta-Ormaechea, S.