Brazil’s old-age pension reform: the ageing problem, the ‘bitterness’ and ways to go
In view of the centrality of the old-age pension scheme in Brazil’s recent political debate, this blog intends to address recently approved changes on the country’s social insurance system rules (Camara dos Deputados, 2019; Senado Federal, 2019). Its goal is not to come upon definitive solutions, but to provide an overview on the subject under different perspectives, pointing out some of the controversial switches and offering reflections that may contribute to the continuity of the debate.
On 20 February 2019, the newly elected Bolsonaro Government handed to the Congress a pension reform proposal promoted as the main priority in its first year of administration. The subject had been intensely discussed since 2016, when then-president Michel Temer handed his own version of such a controversial reform. Both reforms were proposed under the argument of deficit in the system – as many Latin American countries, social insurance’s expenditure exceeded its revenue, making the system unsustainable in the long term. Furthermore, it is argued that a rearrangement would mitigate the problem of Brazil’s ageing population and, in addition, would help to boost the economy by pleasing “The Market” and, therefore, drawing new investments (Trevisani et al, 2019).
“This matter was embraced by the National Congress as a proposal from Brazil, not from a Government” was part of the Senate’s president’s, Davi Alcolumbre, speech during the bill’s final voting (Senado Federal, 2019b). After eight months of discussion, Bolsonaro’s Government had its win: the pension scheme was going to be reformed. Some of the most radical switches proposed, such as the minimum age of retirement and the minimum contribution period, were accepted with only minor alterations.
Some people argue that the pension deficit does not exist – or that it is a result of tax relieves – others, that not only it exists, but it’s a longstanding reality that even surpasses the country’s ongoing economic crisis (Fatorelli, 2019). Despite the contrasting analysis, factors such as the ageing population seem to increase pressure towards a reform that accounts for political, demographic and economic shocks. However, even between those who agreed on the need for change, there was no consensus over how the reform should happen.
A brief analysis of other countries’ pension systems easily reveals that there is no unique “pill of salvation”. This metaphor was, in effect, adopted by some advocates of Bolsonaro’s proposal, arguing that it was a “bitter, but necessary medicine” (Lima et al, 2019). Unfortunately, this simplification (something must change; thus, I support the Government’s proposal) gained ground on the public’s opinion and on a decisive part of Brazil’s political class, leaving a bitter taste in many mouths.
Firstly, because such changes don’t uniformly affect Brazil’s population. According to the United Nations Development Programme’s (UNDP) latest “Human Development Report” (2019), Brazil’s Gini coefficient is 0.533, meaning it is more unequal than Paraguay (0.488) and Congo (0.489). The historical wealth concentration problem, bonded to drastic regional and gender inequalities, as well as pronounced informality and high turnover in the job market, leads to a reality in which most of the working-force cannot contribute systematically to social insurance during their labour-lifetime.
Moreover, in 2014 the average share of contribution time during the working life of people who accessed their old-age pension benefits was 52.9%. The percentage declines drastically when referring to men and women in rural areas, respectively 37.9% and 33.7%. On that year, the old-age pension coverage in Brazil was of 64.7% (ECLAC, 2014). With this information, a conclusion is clear: raising the minimum contribution time without further policies to transform this reality means an even deeper (and unequal) exclusion from this social protection measure. The great issue of the extreme orthodoxy and the austerity agenda is that, when one takes defective bricks off a wall without the caution of replacing them, eventually it all comes down.
Accordingly, not taking these inequalities into account also has an impact on another critical point for the reform: the minimum age. By stating that urban workers must contribute at least until age 65, in the case of men, and 60, in the case of women, it’s clear that the social inequality component was put aside. Just to illustrate the depth of the problem, inside of São Paulo – Brazil’s wealthiest city, capital of its wealthiest state – the average age of death in Cidade Tiradentes, a poor neighbourhood, is 57.3, while in Moema, one of the richest, it’s 80.57 (Rede Nossa São Paulo, 2019). The physical distance between the neighbourhoods is less than 30 km. Besides the evident absurd of an over 23 years gap, these numbers show us that the majority of Cidade Tiradentes’ population won’t get to retire, even if they’ve been working since their childhood. These prospects are even more dramatic when facing poor cities in poor regions.
Map of São Paulo city (Brazil), displaying the average age of death in two of its neighbourhoods. Source: Google Maps
The ageing problem
Brazilian population has passed its demographic window – defined as the period in which “the size of the working-age population is at its maximum compared to the size of the dependent population and hence a high productive capacity goes together with low caring costs for the young and the old” (Ven, Smiths, 2011). It is, however, a half-truth that establishing a minimum age of retirement and raising the minimum period of contribution are unquestionably necessary in face of the population ageing. This analysis, based on a “demographic determinism”, overlooks a factor that is inherent (for better or worse) to the contemporary global economy: growth. As seen in the chart below, Brazil is far from reaching a productivity maximum. Therefore, a shift in its macroeconomic strategies might be more efficient than any pension reform.
Source: Souza, A. P. (2015).
Furthermore, the ageing problem, even though apparently irreversible, can be addressed. China’s revision of its one-child policy, in accordance with its specificities, can be illustrative of it. Another path, clearly closer to Brazil’s reality, would be creating policies to incentivise fertility (Kyo et al, 2019). And social protection can be part of it. Just to name one example, expanding the paternity/maternity leave could, such as it has been made in many countries that have long reached the last demographic stage, boost the fertility numbers and slow the ageing. It would demand, of course, a long-term strategy and the political willingness to add some new bricks to the wall, even if it means to displease “the Market”.
The debates over the old-age pension scheme are far from being exhausted. Social inequalities must be brought to the centre of the debate not only to ensure a more sustainable system, but to remember the old-age pension scheme’s fundamental base: guaranteeing the well-being of people who have reached old-age after a lifetime of work. In addition, the only path to achieve a just and inclusive pension system is by envisioning it under a rights perspective.
Besides the absurdity of deepening the exclusion instead of mitigating it, Bolsonaro’s reform is, in itself, unsustainable. Broadening the number of elders who won’t have State insurance will mean a drastic increase of dependency, a “social passive” with two likely paths: or it will forcibly become a “financial passive”, and the State will have to shape assistance programmes, or there will be “social convulsion”, such as it has been seen in Ecuador and Chile in the last few months (Sasse et al, 2019).
Taking the past reflections into consideration, it seems clear, under our view, that the moral question of ‘how should society reward their employees?’ must be in line with these three principles:
- Guaranteeing protection by providing the adequate coverage, with no one left behind.
- Guaranteeing a level of sufficiency of the granted benefits.
- Shaping a financially sustainable system.
Ignoring any of these would create imbalance and, ultimately, the whole objective of granting social protection fades away. Repairing mechanical failures without minding the engine, in Brazil’s case, meant reaching such an imbalance. Rethinking and redefining the institutional frameworks – such as Chile seems to be heading to – and not isolating work from company profits and public expenditure from the realisation of rights are necessary parts of the long journey ahead (Hernandez et al, 2019).
Câmara dos Deputados (2019). Proposta de Emenda à Constituição n˚ 06/2019. Accessible: https://www.camara.leg.br/proposicoesWeb/fichadetramitacao?idProposicao=2192459
Chiliatto-Leite, M. V. (2017). “Densidade de contribuição na previdência social do Brasil”, ECLAC, Accessible: https://repositorio.cepal.org/bitstream/handle/11362/42728/S1701127_pt.pdf?sequence=1&isAllowed=y
Fattorelli, M. L. (2019) “O ‘déficit’ da Previdência é fake”, Associação Nacional de Auditores Fiscais da Receita Federal do Brasil (ANFIP). 11 January 2019. Accessible: https://www.anfip.org.br/artigo-clipping-e-imprensa/o-deficit-da-previdencia-e-fake/
Hernandez, D. and Gigova, R. (2019) “Chile pins hopes on '100% democratic' new constitution to end deadly protests”, CNN. 15 November 2019. Accessible: https://edition.cnn.com/2019/11/15/americas/chile-congress-constitution-protests-intl-hnk/index.html
Human Development Report – Beyond income, beyond averages, beyond today: Inequalities in human development in the 21st century (2019), UNDP, Accessible: http://hdr.undp.org/sites/default/files/hdr2019.pdf
Kuo, L. and Wang, X. (2019) “Can China recover from its disastrous one-child policy?”, The Guardian. 2 March 2019. Accessible: https://www.theguardian.com/world/2019/mar/02/china-population-control-two-child-policy
Lima, V. and Peron, I. (2019) “Senado aprova em 2º turno texto-base da reforma da Previdência por 60 votos a 19”, Valor investe. 22 October 2019. Accessible: https://valorinveste.globo.com/objetivo/aposentadoria/noticia/2019/10/22/senado-aprova-em-2o-turno-texto-base-da-reforma-da-previdencia-por-60-votos-a-19.ghtml
Mapa da Desigualdade (2019), Rede Nossa São Paulo, Accessible: https://www.nossasaopaulo.org.br/wp-content/uploads/2019/11/Mapa_Desigualdade_2019_tabelas.pdf
Mota, C. V. (2019) “Um retrato da Previdência no Brasil em 6 fatos”, Época Negócios. 22 January 2019. Accessible: https://epocanegocios.globo.com/Brasil/noticia/2019/01/um-retrato-da-previdencia-no-brasil-em-6-fatos.html
Sasse, E. R. and Urrejola, J. (2019) “Convulsiones sociales en el continente de la desigualdad”, Deutsche Welle (DW). 22 October 2019. Accessible: https://www.dw.com/es/convulsiones-sociales-en-el-continente-de-la-desigualdad/a-50941100
Senado Federal (2019a). Emenda Constitucional n˚ 103/19. Accessible here : https://legis.senado.leg.br/norma/31727296
Senado Federal (2019b) – “Senado conclui análise da Reforma da Previdência”. 23 October 2019. Accessible: https://www12.senado.leg.br/institucional/presidencia/noticia/davi-alcolumbre/senado-conclui-analise-da-reforma-da-previdencia
Soares, S. (2018) “Desigualdade no Brasil de 2016 a 2017: um exercício de decomposição e análise de mercado de trabalho de pouca mudança (o que é uma boa notícia)”, IPEA, Accessible: http://www.ipea.gov.br/portal/images/stories/PDFs/TDs/td_2408.pdf
Souza, A. P. (2015). “The Brazilian Demographic Transition: Features and Challenges”, São Paulo School of Economics, Accessible: https://www.berlinerdemografieforum.org/wp-content/uploads/2016/08/Portela_Presentation.pdf
Trevisani, P. and Lewis, J. T. (2019) “Brazil Senators Approve Pension System Overhaul”, The Wall Street Journal. 22 October 2019. Accessible: https://www.wsj.com/articles/brazil-senators-approve-pension-system-overhaul-11571786238
Ven, R. V. and Smits, J. (2011). “The demographic window of opportunity: age structure and sub-national economic growth in developing countries”, Radboud University Nijmegen, download: https://www.google.com.br/url?sa=t&rct=j&q=&esrc=s&source=web&cd=3&cad=rja&uact=8&ved=2ahUKEwjekIj-oMroAhUbIbkGHY6VArcQFjACegQIAhAB&url=https%3A%2F%2Fwww.ru.nl%2Fpublish%2Fpages%2F516298%2Fnice_11102.pdf&usg=AOvVaw2JpVTY63jgeyYDglCJro12
 The measure “of the deviation of the distribution of income among individuals or households within a country from a perfectly equal distribution. A value of 0 represents absolute equality, a value of 100 absolute inequality”