September 21, 2020

The key points of the pension reform in Brazil

The plenary session of the Lower House of Brazil has left ready for a second vote the reform of the pension system, a project defended by the Government of President Jair Bolsonaro and that has undergone some modifications after intense and prolonged negotiations in Congress.

These are some of the axes of the project, which must still be submitted to a new sanction in the Chamber of Deputies and to two other votes in the Senate for final approval.

1.- Establishment of a minimum age

The text provides for a minimum retirement age, but some categories, such as that of teachers or federal security bodies, will have a differentiated regime.

The requirement of a minimum age did not exist in the current system, which allows women to retire with 30 years of contributions and men with 35, so that there are cases in which it is possible to access this benefit with about 50 years.

– Private sector workers in urban areas

Minimum retirement age of 62 years for women and 65 for men, with a minimum contribution time of 15 years.

– Workers in rural areas

Minimum retirement age of 55 for women and 60 for men, with a minimum contribution time of 15 years.

– Federal public officials

Minimum retirement age of 62 for women and 65 for men, with a minimum contribution time of 25 years.

2.- Calculation of benefit

The value of retirement will be calculated taking into account the worker's average contribution.

Upon reaching the minimum contribution time, the workers of the general regime will be entitled to 60% of the integral benefit, with an increase of two percentage points for each additional year of contribution.

In this way, to obtain 100% of the benefit it will be necessary to reach the minimum age required, as well as 35 years of contribution for women and 40 years for men.

3.- Transition of 14 years with different options

The proposal includes a transition period of 14 years. During this period, the worker will have different options to retire according to different formulas, depending on whether he prefers to choose the minimum age or the time of contribution, or to make an average between both factors.

4.- Millionaire savings for public accounts

The Government had originally planned a fiscal saving equivalent to about 265,000 million dollars in 10 years. That figure, however, could be lower due to the changes that the project has undergone in the lower house, whose impact has not yet been fully calculated.

5.- Exclusion of states and municipalities

The document approved in the first vote by the Chamber of Deputies does not modify the rules for the retirement of the public officials of the states and municipalities, only for the federal ones.

According to the Atlas of the Brazilian State, launched in 2017, municipal civil servants represent 57% of the total in the country, while the regional equivalent to 33% and the federal just 10%, although they have the highest salaries and pensions .

6.- Whoever earns the most pays more

The reform establishes changes in workers' retentions. They will also be progressive. Those who have a higher salary, will contribute more to the system and those who receive a lower salary will be retained less.

In the private sector, effective rates vary from 7.65% to 11.68%, while those of officials go from 7.5% to 16.79%, depending on the salary range.

7.- The reform excludes the capitalization regime

The reform leaves out the system individual capitalization, similar to the Chilean one and in which the retirement of each worker will depend on their ability to save throughout their working life. The Government, however, intends to insist on the matter and could propose a specific bill on that point, so that it is optional for each worker.

8.- Long way ahead

The reform still needs to be approved in a second vote in the Chamber of Deputies, which is scheduled for the month of August, after the parliamentary recess. Then, two more votes in the Senate, where the Government will need the votes of 3/5 of the legislators, since it is a constitutional amendment.

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