How Brazil’s pension system compares to other countries

. Nov 11, 2018
How Brazil's pension system compares to other countries pension reform

Brazil’s pension system is widely regarded—except among some economists from the Workers’ Party— as being something of a “ticking time bomb.” During his term, President Michel Temer tried to propose an overhaul of the system, spending BRL 100 million on ads against the “privileges” created by Brazil’s current pension regime, in which “those who work a little and make a lot get to retire early.” However, it was a futile effort to convince Brazilians that a reform is necessary. Organized lobbies protected themselves, with the help of Congress, and the reform went nowhere.

This week, future Minister of the Economy Paulo Guedes talked about the government “cornering” Congress in order to get some points of that reform approved in 2018. This would get investors excited about Brazil, and would spare President-elect Jair Bolsonaro from the political costs of such an unpopular reform.

However, Brazil is by no means the only country in which the pension system inspires deep worries about public finances. While life expectancy is up all over the world, birth rates are going in the opposite direction. Around the world, pensions will become a serious issue over the long term.

</span></p> <h2>Pension system problems across the globe</h2> <p><span style="font-weight: 400;">A recent World Economic Forum </span><a href=""><span style="font-weight: 400;">study</span></a><span style="font-weight: 400;"> shows that the pension system used in eight of the world&#8217;s largest economies is in deficit—a hole that grows by USD 28 billion every day. By 2050, deficits in the U.S., Canada, Australia, China, UK, Japan, India, and the Netherlands could reach a combined USD 400 trillion—five times the current size of the global economy. The study highlighted five reasons for this, as follows:</span></p> <ol> <li style="list-style-type: none;"> <ol> <li style="font-weight: 400;"><span style="font-weight: 400;">People are living longer than what was predicted when pension systems were planned;</span></li> </ol> </li> </ol> <ol> <li style="list-style-type: none;"> <ol> <li style="font-weight: 400;"><span style="font-weight: 400;">There&#8217;s a gap between how much it takes to pay for pensions and what countries manage to save;</span></li> </ol> </li> </ol> <ol> <li style="list-style-type: none;"> <ol> <li style="font-weight: 400;"><span style="font-weight: 400;">That gap is growing at an &#8220;alarming rate;&#8221;</span></li> </ol> </li> </ol> <ol> <li style="list-style-type: none;"> <ol> <li style="font-weight: 400;"><span style="font-weight: 400;">Deficits are even higher among women, who live longer;</span></li> </ol> </li> </ol> <ol> <li style="font-weight: 400;"><span style="font-weight: 400;">Governments must take action immediately, increasing savings, teaching people how to deal with their finances, explaining how the pension system works.</span></li> </ol> <hr /> <p><img class="alignnone size-large wp-image-11203" src="" alt="generous pension system" width="1024" height="787" srcset=" 1024w, 300w, 768w, 610w, 1200w" sizes="(max-width: 1024px) 100vw, 1024px" /></p> <hr /> <h2>Brazil&#8217;s aging population</h2> <p><span style="font-weight: 400;">The Brazilian population is currently young, but is set to undergo a very quick aging process, fast even in comparison to fellow Latin American nations Argentina and Mexico. According to Brazil&#8217;s current system, those who enter the job market pay for the pensions of currently retired people. With an unprecedented job crisis and fewer people being born—but more people getting older—the system can&#8217;t work for long.</span></p> <hr /> <p><img class="alignnone size-large wp-image-10556" src="" alt="brazil popularion pyramid" width="1024" height="239" srcset=" 1024w, 300w, 768w, 610w" sizes="(max-width: 1024px) 100vw, 1024px" /></p> <hr /> <p><span style="font-weight: 400;">A study of the OECD places Brazil&#8217;s pension system as one of the world&#8217;s most &#8220;generous,&#8221; in terms of how much people receive during retirement as opposed to their salaries as active workers. The higher the rate, the more generous the pension system is:</span></p> <hr /> <p><img class="alignnone size-large wp-image-11202" src="" alt="generous pension system" width="1024" height="630" srcset=" 1024w, 300w, 768w, 610w, 1300w" sizes="(max-width: 1024px) 100vw, 1024px" /></p> <hr /> <p><span style="font-weight: 400;">According to economist Marcos Lisboa, President of São Paulo’s Insper Business School, the number of people over 65 years of age is growing by a rate of 3.5 percent every year. However, the number of workers is only growing by 0.7 percent. Within the next 15 to 20 years, the economically active population will decline, while senior citizens will become more numerous.</span></p> <p><span style="font-weight: 400;">Recent studies show that the pension system will have a BRL 201 billion deficit this year, a number that could reach BRL 218 billion in 2019. These numbers, however, are the object of controversy, as many left-wing parties contest them. </span></p> <p><span style="font-weight: 400;">According to a study by the National Development Bank (BNDES), between 1988 and 2017, the expenditure on pensions and benefits jumped from 2.5 to 8.5 percent of the GDP. That&#8217;s explained by the low rates of economic growth, the substantial growth of the minimum wage, and the generous rules in Brazil, such as a lack of a minimum retirement age. That leads Brazil to have an average retirement age which is much lower in comparison to other countries. According to experts, having a lower life expectancy than OECD countries doesn&#8217;t justify the discrepancy.</span></p> <p><span style="font-weight: 400;">However, the focus of a pension system reform shouldn&#8217;t be exclusively on balancing the deficits &#8211; it must provide some parachute-benefits for poorer folks not to be disproportionally hit by an overhaul of the system.

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