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Pension reform In Brazil: Calculating the distributive impacts

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Added , Speaker Luis Eduardo Afonso (University of Sao Paulo), Helio Zylberstain (University of Sao Paulo), VICA2018, in PENSIONS
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Speaker(s): Luis Eduardo Afonso (University of Sao Paulo), Helio Zylberstain (University of Sao Paulo)

Brazil is experiencing a severe fiscal crisis, caused by a deficit of over USD 45 billion in the national pension scheme. For this reason, in December 2016, the Brazilian government sent a comprehensive and strong proposal for pension plan reform to the National Congress.

The most important measures of this proposal are the unification of the two pension types in force at the time (by time of contribution and by age) and the imposition of a minimum age of 65 for men and women, with a contribution period of 25 years (Brazil is one of the rare countries where there is no minimum age of retirement). There will be a transition period for all men (women) older than 50 (45) years, with an increase of 50% in the time remaining to complete the minimum contribution period, according to the rules previously in force. Younger workers will be included in the new rules. Based on this scenario, this work quantifies the distributive aspects of the government proposal.

Three pension indicators are calculated: Replacement Rate, Internal Rate of Return and Necessary Contribution Rate, for two benefits of the national pension scheme: Retirement by Time of Contribution and by Age, for different profiles of gender, income, contribution period and initial age of contribution. There will be a reduction in all of the indicators. The average replacement rate will drop from 63.4% to 58.2% and the average internal rate of return will reduce from 1.93% to 1.33% per year. There will no longer be differences by gender, income and benefit. Women, those who retire by age, and low-income workers will be the most affected by the reform. The pension system will lose an expressive part of the distributive features previously in force. The reform is not neutral, not even during the transition period.

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