Government presents much-anticipated pension reform bill

Author

Gustavo Ribeiro
February 21, 2019 • Reading Time: 7 minutes

In today’s issue: Government presents much-anticipated pension reform bill. Can the pension reform pass in Congress?

Government presents much-anticipated pension reform bill

President Jair Bolsonaro and Economy Minister Paulo Guedes presented their much-anticipated bill to overhaul Brazil’s expensive pension system. We break down the main changes to the current framework:

  • The minimum retirement age will be of 62 (women) and 65 (men). For teachers, it will be 60. Police agents can retire at 55, as long as they have worked for 25 years (women) and 30 years (men).

  • To be eligible for retirement pensions, workers will have to have contributed to the system for at least 20 years—and full pensions will only be obtained after 40 years of work.

  • Retired people still in work will lose the right to withdraw money from the severance fund FGTS, and see their pensions cut by 40%.

  • Private-sector workers and civil servants will be part of the same pension system. For the former group, contribution rates go from 7.5% to 11.68%; for state agents, it will go up to 22%, depending on salary. The same rules apply to servants working for municipalities and states—but when administrations face financial problems, rates will be higher.

  • The “salary bonus,” a 14th salary currently paid to those who receive less than BRL 2,000/month, will be only available for those receiving up to the minimum wage of BRL 1,000. For lower-income senior citizens, benefits will be cut in half, to BRL 400—and it doubles once they reach 70 years old.

  • The Armed Forces weren’t included in the bill. The government promises a reform for military workers to come within 30 days. “Per Brazil’s legal framework, they must have their own pension reform,” said the Ministry of the Economy.

  • Workers can opt for 3 transition paths—all of which combine length of service with age.

What to make of the pension reform bill?

The government’s project certainly has its merits and is the boldest ever presented. While it doesn’t scrap inherent disparities within the system, it makes access to privileges a bit harder. Pensions for the length of service, one of the major sources of inequality, will no longer exist. That rule benefits wealthier workers who go sooner into retirement. The reform also eliminates loopholes that allow the government to mask the pension system deficit.

The biggest problem of the reform, however, is its harshness on poorer citizens. Making access to benefits harder on underprivileged people may increase poverty in the mid- to long-term.

Can the pension reform pass in Congress?

Almost no piece of legislation goes through Congress without being altered by lawmakers. That’s especially the case with amendments to the Constitution (which is required in order to overhaul the pension system), as they need 60% of votes in both congressional chambers, in two separate rounds of voting. So, expect the reform to be trimmed down in order to reach a consensus.

To avoid the butchering of the bill, the government will need serious negotiators with the legislative branch. And that won’t be easy—not even former President Michel Temer, a skilled corridor operator, managed to get his own reform to a vote. Per the government’s own calculations, the reform currently has around 190 votes in the House—way below the required 308. Organized lobbies—such as that of civil servants—are very strong in Brasilia and will need to be catered to.

The good piece of news is that, since the reform is very harsh, there is room for compromise without disfiguring the bill. Also in the government’s favor is the intelligence communication strategy—focusing on passing along the message that the reform slashes privileges.

But according to Carlos Melo, a political scientist at São Paulo’s Insper Business School, “there is no incentive for Congress to approve the reform as it is.” He continues: “Things will get done very gradually. Some minor changes this year, to calm down markets, then another bit next year—if the administration treats Congress as it wants to be treated, and so on.”

Too good to pass?

The bill presented by President Jair Bolsonaro and Economy Minister Paulo Guedes is what financial markets were hoping for—and yet the São Paulo stock exchange operated at a loss yesterday, and the Brazilian Real lost value against the U.S. Dollar. That’s because many believe that Congress could end up passing a watered-down version of the proposal.

According to Guide, a brokerage firm, the government’s political defeat on Tuesday (when Congress voted down a presidential decree) is a sign that the administration lacks the necessary political coordination for passing such a bold reform. Coupled with that is the continued electoral fraud scandal involving the president’s party.

Investors were scared by a negative reaction from state governors, led by Ibaneis Rocha (Brasília) and João Doria (São Paulo). Each defended changes to the bill in order to accommodate “regional differences.”

What else you should know today

  • Dam collapse. Mining giant Vale has signed a deal with Minas Gerais state prosecutors committing to pay a salary of BRL 998 to each adult living in the town of Brumadinho—where one of the company’s dams collapsed on January 25, killing at least 171 people. The payments will go for 12 months—teenagers and children will get 50% and 25% of the minimum wage, respectively. 

  • Drugs.This morning, the Federal Police is carrying out a massive operation against gangs that send drugs to the U.S. and Europe. Courts issued 55 arrest warrants and seized 47 planes, 13 farms, and 10,000 cattle belonging to traffickers. The accused shipped at least 9 tons of cocaine between 2017 and 2018.

  • Homophobia.The Supreme Court continues its trial on whether homophobia and transphobia should be made crimes. Only one of the 11 justices has voted so far—in favor of criminalization. Justice Celso de Mello wants hate crimes against LGBTQ people to be equivalent to racism, while Congress has not decided on the issue.

  • Inflation.The IPCA-15 index, a sort of predictor of the official inflation rate, stood at 0.3% for January—the lowest for that month since the Brazilian Real was created in 1994.

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