The latest version of Brazil’s pension reform

. Jun 14, 2019
The latest version of Brazil's pension reform

After weeks of anticipation, member of Congress Samuel Moreira finally presented his report on the pension reform yesterday, dissipating some of the doubts surrounding the most important bill proposed in Brazil this decade. His version of the reform plan is set to save BRL 913.4 billion in ten years, enough to help give some balance to Brazil’s public finances, but still below the BRL 1.2 trillion originally intended by Economy Minister Paulo Guedes wanted—a requirement, in his words, to stimulate investments and eventually foster job creation.

In his report, Mr. Moreira excluded some controversial points of the original draft, such as cuts to benefits given to poorer elderly and disabled citizens. He also excluded state- and municipal-level civil servants from the new retirement rules. Centrist parties believe state lawmakers and governors didn’t make enough of a case for the reform with their voter base—and that Congress would be the sole bearer of the political burden of the unpopular pension reform.

</span></p> <p><span style="font-weight: 400;">While the move makes the reform easier to push through, both in the House and the Senate, it also cuts back on its potential savings. Meanwhile, not including states in the reform will almost certainly doom most of them to financial ruin, providing they do not approve their own separate reforms. In Rio de Janeiro, for instance, the social security deficit represents 30 percent of the state’s liquid revenue.</span></p> <hr /> <p><img class="alignnone size-full wp-image-19215" src="" alt="" width="1200" height="800" srcset=" 1200w, 300w, 768w, 1024w, 610w" sizes="(max-width: 1200px) 100vw, 1200px" /></p> <hr /> <h2>Different rules for men and women</h2> <p><span style="font-weight: 400;">Mr. Moreira also </span><a href=""><span style="font-weight: 400;">maintained the differences between men and women in some of points</span></a><span style="font-weight: 400;">, such as minimum retirement age and length of service. The original bill proposed that urban male workers would retire by the age of 65, while women would retire by the age of 62, raising their contribution period by at least 20 years; now, women may retire after only 15 years of service. There will be differences between male and female teachers, as well as rural workers.  </span></p> <p><span style="font-weight: 400;">Social benefits such as salary bonuses, family salary benefits (paid to low-income families according to the number of children they have), and imprisonment aids will be given to low-income families (who earn up to BRL 1,364)—versus one minimum wage (BRL 1,000) proposed by the government. Benefits will also remain adjusted according to inflation, unlike the government’s proposal. </span></p> <p><span style="font-weight: 400;">The report adds </span><a href=""><span style="font-weight: 400;">new transition rules</span></a><span style="font-weight: 400;"> to the three proposed by the original bill. Workers under the general social security system, as well as public servants, will be able to pay a “toll” of 100 percent over the time remaining to retire, if they are older than 57 years (women) and 60 years (men)—but they will be able to earn their full salaries. According to economist Monica de Bolle, a professor at Johns Hopkins University, it is likely that people who opt for this alternative won’t receive the money equivalent to the time remaining for obtaining the full value of their pension.  </span></p> <p><span style="font-weight: 400;">Following this rule, civil servants will be able to retire earlier than previously foreseen by the government’s bill, which may help to diminish their resistance, as media outlets have been speculating.</span></p> <hr /> <p><img class="alignnone size-full wp-image-19219" src="" alt="whip list pension reform" width="2048" height="1701" srcset=" 2048w, 300w, 768w, 1024w, 610w" sizes="(max-width: 2048px) 100vw, 2048px" /></p> <hr /> <h2>No capitalization at this stage of the pension reform</h2> <p><span style="font-weight: 400;">In a move contrary to the government’s interests, Mr. Moreira removed provisions for a capitalization system from the text, a measure on which Mr. Guedes has relied to diminish the burden on companies and foster jobs. However, the Secretary of Social Security and Labor, Rogerio Marinho, said that the government is considering sending another bill to propose a capitalization system to Congress, probably during the second half of the year. </span></p> <p><span style="font-weight: 400;">“It is very possible that we will present a project about capitalization as a second step,” he said, </span><a href=";utm_medium=webalert&amp;utm_campaign=economia"><span style="font-weight: 400;">according to UOL</span></a><span style="font-weight: 400;">.</span></p> <p><span style="font-weight: 400;">But, in spite of the lower savings, the rapporteur found a way to avoid the controversial points and give the government more money. Currently, </span><a href="!ut/p/z1/tZRBc5swEIV_Sw4cZQkDBveGGdek4CZu6trmkhEgQK2RiJBN0l_ftcspE-PppOGAhp2n976VZsEJ3uJE0CMvqeZS0D1875LJo7taBKFvmzGZzzyyujVX9n1kjR9sgjdnAbnw-AQnw_t_4AQnmdCNrvAuFTlrH7loNdeH7ExgkErWzCBaUdE2VDGRcWqQ4iBy2cJK9fmF9lxUFOUSaVY38mTaZDzHO8YylxRpilLT9pBd5BnysqmNTGdCXWdssiwr-iYGKJPhHjenvMsOgWP2gngazUP7jsTEuv9M_DA21_ZyRsaR_Vpwd2vNQRDEjj2PzMXU6gUDFDvowr3chYk3R846vBZS1XC1D_94SOG1hIi8M-GK_eRj7Z2PtXffaf_l2iTBqI7VMliWYEt1hbgoJN6-MRsg5D-fnhIfBk8KzZ413v6_yQPOci_Tv_8OX6SWB0CKFUwxNTooKFdaN-0ngxik67rROXlUyuMoVVBpwLqRSp_yW67ZIAWCbUwJWjOhKW_7MsoZojVoJaJApSjAVDSXCgHuW1SVbKH-GgY39br2rBf061v4e_YVLYLU674Xdb9sPO29WPvy5uYPe4-PJg!!/dz/d5/L2dBISEvZ0FBIS9nQSEh/"><span style="font-weight: 400;">40 percent of PIS-Pasep</span></a><span style="font-weight: 400;"> (social security contributions) are destined to the Workers&#8217; Support Fund (FAT), a fund that pays for salary bonuses and unemployment insurance. The Brazilian Constitution establishes that part of that money should be transferred to the National Development Bank (BNDES), aiming to foster investments in social development programs, transforming the FAT into a major financing source for infrastructure projects. </span><span style="font-weight: 400;"><br /> </span><span style="font-weight: 400;"><br /> </span><span style="font-weight: 400;">Mr. Moreira proposes that </span><a href=""><span style="font-weight: 400;">28 percent of the PIS-Pasep</span></a><span style="font-weight: 400;"> should be diverted to social security, and FAT would no longer support the BNDES. He also increased CSLL contributions from banks, from 15 percent to 20 percent, aiming to collect an extra BRL 50 billion in ten years. </span></p> <p><span style="font-weight: 400;">Although this can’t be considered as savings, it increases the overall impact of the bill to BRL 1.13 trillion—very close to the BRL 1.2 trillion desired by the government. </span></p> <p><span style="font-weight: 400;">The report is subject to changes, as it has to be approved by the representatives, so there’s still chances of some watering-down to the savings. But, as economist Pedro Fernando Nery told </span><b>The Brazilian Report</b><span style="font-weight: 400;"> during </span><a href=""><span style="font-weight: 400;">an exclusive interview</span></a><span style="font-weight: 400;">, “(savings) could be a little bit smaller, as long as the reform is broad and puts spending on a more sustainable path. I don’t see much trouble in reducing the savings to BRL 800 billion if the problem is well directed for the following decades.”</span></p> <p><span style="font-weight: 400;">However, it is important to remember that this proposal was built under the guidance of the House Speaker, Rodrigo Maia, and other powerful leaders, so it is expected to have more support than the original text presented by the government. However, this doesn&#8217;t mean the battle got any easier. As </span><a href=""><span style="font-weight: 400;">O Globo newspaper shows</span></a><span style="font-weight: 400;">, only four parties have formally decided to support the bill, reaping 120 votes. As the proposal is to amend the Constitution, it will require two-thirds of the House to support it—a total of 308 votes.

Natália Scalzaretto

Natália Scalzaretto has worked for companies such as Santander Brasil and Reuters, where she covered news ranging from commodities to technology. Most recently, she worked as an Editor for Trading News, the information division from the TradersClub investor community.

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