Brazil's Social Security System: Prospective Trajectory and Reform Alternatives

Abstract

SUMMARY This article assesses the current status of Brazil's Social Security System in terms of the social and economic development of the Brazilian population it is intended to serve. It starts with a historical overview of the system. Data from a household survey (Pesquisa Nacional por Amostra de Domicílio) is used to describe the workforce and its relationship with the social security system. The years 1992, 1997, 2002, 2007, and 2012 were chosen to give a series of pictures of the Brazilian population at equal intervals but under different legal circumstances with respect to the implementation of social security legislation. Data with regard to beneficiaries and the corresponding expenditures and revenues of the system are also shown. The situation presented is rather bleak considering that, since 1997, expenditure on benefits has consistently surpassed revenues based on payrolls. Some alternative reform options (parametric in nature) are evaluated using simulations. These simulations show that the alternative of postponing the eligibility age would have the greatest positive effect on balancing the books, especially when using 65 years as the minimum pensionable age. This would be the equivalent of eliminating “seniority retirement.” Age testing is also effective for the recipients of survivor's benefit. Eliminating multiple benefits, though not impressive in terms of numbers, is progressive in nature and, therefore, an alternative to be considered. Dissociating the minimum wage from the minimum benefit would have a much larger impact in the long run, but the measure is highly unpopular and would most probably not be approved if proposed by the Government. Copyright © 2014 John Wiley & Sons, Ltd.

PUBLIC POLICY FOR PENSIONS REFORM: A GOVERNANCE CHALLENGE FOR PUBLIC ADMINISTRATION AND DEVELOPMENT: Introduction to the Special Issue

“…Other countries would not be willing to allocate so much risk to individuals notwithstanding the apparent advantages of the Australian approach in terms of financial sustainability and intergenerational equity. Beltrao and Pinhanez (2014) support the continued role of government-managed pillar 1 schemes accepting that this will require continued review of policies as circumstances change in order to manage the risks the government would retain (and acknowledging the problems Brazil faces in managing those risks already). At the workshop, the German pillar 1 approach was described as being almost a property right: it was accepted that such a firm entitlement must limit the extent to which the scheme can redistribute benefits amongst contributors and must also place responsibility on government to manage the scheme without allowing people to receive more than their contributions could genuinely fund.…”

“…Breaking down barriers between income maintenance schemes for different population groups and broadening coverage are not just to address inequities but are also important to enhance labour mobility, a critical issue for both developing and developed economies. Li (2014) and Beltrao and Pinhanez (2014), as well as Bali (2014), demonstrate in their articles not only the importance of this challenge but also the considerable political, administrative and financial difficulties involved.…”

“…Many countries of course are yet to establish a coherent national framework, and are in different stages of a process to integrate schemes designed for different population groups, and to achieve more universal coverage. This is very much apparent from the articles on China (Keyong Dong andGengyu Wang, 2014 andBingqin Li, 2014), India (Azad Singh Bali, 2014) and Brazil (Monica Pinhanez and Kaizo Beltrao, 2014). The pillars framework is nonetheless recognised as a useful device for considering the direction of reform, the weights to be attached to different objectives, the allocation of risk and the long-term sustainability of the emerging system.…”

“…For younger, developing countries, such problems may seem to be well into the future, but several articles here (including the article of Podger et al (2014), Dong and Gengyu (2014) and Bali (2014)) warn that the challenge will arise in the not-too-distant future and, for some, may be more dramatic than the challenges now facing OECD countries. Beltrao and Pinhanez (2014) reveal that Brazil already has a large deficit between benefits and contributions despite its young population, and political obstacles to resolving the immediate problem let alone the problem projections of current policies suggest might arise in future. There may be merit in the World Bank view that whatever the mix of pillars a country chooses to have in the income maintenance component of its pension system, a pillar 2 defined contributions approach might be useful as a benchmark for the design of benefits and contributions.…”

“…Perhaps, Beltrao and Pinhanez (2014) illustrate pathway dependency most clearly while recognising that many of Brazil's challenges are common to other developing and emerging nations, including in South America. Politics precludes the possibility of Brazil shifting from pillar 1 to pillar 2 approaches and, in any case, the authors note that other South American countries that have pursued such a shift have faced serious problems.…”