Brazil: Brazil - Reform Of The Social Security System

Last Updated: 16 May 2019
Article by José Carlos Wahle
Most Read Contributor in Brazil, July 2019

President Bolsonaro has proposed a legislative bill to the Brazilian Congress to reform the social security system (the 'INSS'). In summary, the bill increases the age for retirement, combining it with a minimum contribution time. It eliminates retirement based only on contribution time. It also proposes changes to the calculation of pensions and to the minimum and maximum funding contributions made by workers.

The transitional rules are one of the most controversial elements of the bill. The statutory severance fund ('FGTS') monthly contributions (8%) and corresponding severance penalty (40%) will no longer be due to retired workers. This may pose legal issues, as FGTS is a constitutional right regulated by federal law. It is debatable whether a new law can stipulate cases of exemptions that are not contemplated in the Constitution.

The key elements of the proposed reform are set out below.

Eligibility

  • Women will be eligible to a pension at the age of 62 and men at 65, provided they have made at least 20 years of contributions.
  • Retirement based only on contribution time will end after a 12-year transition period.
  • For workers in private companies, there will be three alternative transition rules based on different combinations of years of contribution and age, or on age alone.
  • Public servants will have a special transition regime.

Pension

  • Pensions are determined by the employee's salary, which constitutes the basis for contributions. Employee's contributions and pensions are capped.
  • The maximum pension (BRL 5,839.45 in 2019) is granted after 40 years of contribution.
  • The minimum pension (60% of maximum) is granted after 20 years of contribution.
  • After the transition term, an additional premium 2% will be granted for each additional year of contribution up to a maximum of 110% for 45 years.

Employee's contribution (deducted from payroll)

The minimum contribution has decreased and maximum contribution has increased.

FGTS

The FGTS monthly contributions (8%) and corresponding severance penalty (40%) will no longer be due to retired workers. This amendment may have legal issues. FGTS severance is a constitutional right but it is regulated by a federal law. It is debatable if the law can stipulate cases of exemption.

Disability

The disability pension will be paid at the minimum rate of 60%, plus 2% per year of contribution over 20 years.

Death (pension to dependant)

The pension payable to dependants on an employee's death will be 60%, plus 10% for each additional dependant up to a maximum of 100%.

Pension for low-income disabled and elderly people

There will be different pensions from the ages of 60 and 70.

Pensions will no longer be cumulative

It will no longer be possible to combine pensions, except in special professional categories provided under the law.

Special Categories (matters of peculiar interest)

Specific conditions will apply for the following categories of workers.

Rural workers

Eligibility at the age of 60 for men and women provided they have made 20 years of contributions.

Public servants

There are special transitional rules: pension is payable at the same ages as other workers, but with a minimum of 25 years of contribution, ten of which must have been made in public service.

Teachers

Teachers will be eligible at the age of 60, provided they have made at least 30 years of contributions; the rules for public servants apply to teachers in public schools.

Politicians

For politicians there will be special transition provisions but the default rules will apply after that (currently they have a special regime).

Police and armed forces

Special transitional rules and regime will apply.

Timing and next steps

Political analysts say it will be impossible to pass this bill through the bicameral Congress before mid-year. Approval itself is still doubtful because of the conflicting interests of public servants and workers in private companies. Companies make a substantial contribution to social security (28% of payroll) and say there is no room for extra funding. In fact, the increase of payroll social security costs would make local production less competitive.

Bills in Brazil are subject to amendments by Congress and the presidency itself, meaning the proposals may change during the legislative process. One possible concession may be a lower retirement age for women than in the original proposal.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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