Special Secretary of Social Security expects the process to be completed before the congressional recess in July
The pension reform proposal delivered today by President Jair Bolsonaro (PSL) to the mayor, Rodrigo Maia (DEM), is comprehensive: it includes private sector workers, public servants, and beneficiaries of social assistance. The text also includes measures to combat fraud and strengthen the collection of debts to the INSS.
The military has been left out but, according to the Ministry of Economy, a bill amending the social protection system of the Armed Forces will be sent to Congress until March 20.
As it is a Proposed Amendment to the Constitution (PEC), the text of the reform will only come into force if it is approved by the House and the Senate, with the support of at least three-fifths of the parliamentarians in each House and two voting shifts.
The analysis begins with the deputies and, if modified by the senators, has to return for new analysis in the Chamber. The amendment would take effect as of the date of publication.
The special secretary of Social Security and Labor, Rogerio Marinho, said he hoped that all this process would be completed before the July congressional recess.
To justify optimism over the deadline for approving an unpopular measure, Marinho said he was approached by many lawmakers wishing to support the proposal.
“I have never seen so many parliamentarians seeking to be rapporteur for a project so apparently unpopular,” he said, who was a Labor reform rapporteur and was unable to re-elect a deputy in the 2018 election.
According to Jose Francisco de Lima Goncalves, the chief economist of Banco Fator, the “passivity of the market” during the announcement – when the stock market “walked sideways” (operating without a definite trend, neither rising nor falling much) and dollar yielded little – indicates that the proposal came as expected: “stronger than that of [former President Michel] Temer.” The Ibovespa closed down 1.14% at 96,544 points.
Moreover, the numbers indicate that economic agents expect to measure the temperature in Congress and the political competence of the government to approve reform or not.
“Based on what happened in the last 10 days, I would say that this is questionable (the government’s ability to mobilize a broad support base in Congress),” Goncalves says, referring, for example, to the open crisis with the suspicion of use by the PSL, party of Bolsonaro, of applications of oranges to divert resources of the Party Fund.
The episode, marked by a disagreement between the president’s son Carlos Bolsonaro and the General Secretary of the Presidency, Gustavo Bebianno, culminated in the resignation of Bebianno on Monday.
Details of the proposal were presented by government officials at a press conference that lasted more than 5 hours, in which they reinforced that acquired rights will not be changed.
Here are the main points of the reform submitted by the new government to Congress:
1. General rule in the INSS: minimum age and contribution time
The proposed general rule provides for a minimum retirement age for private sector workers at age 62 (women) and 65 (men), with a contribution of 20 years. Today, retirement by age requires 60 and 65 years, with 15 years of social security contribution.
The proposed text also ends with the possibility of retirement by contribution time, which exists today for women who have completed 30 years of retirement for INSS and men who reach 35 years.
Government data show that the poorest population usually retires by the minimum age rule. Thus, the main impact for this public, who often finds it difficult to maintain long-term signed employment, is the five-year increase in the contribution time requirement.
2. Transitional rules in the INSS
Three different transition rules are foreseen for those who intend to retire by the time of contribution by the INSS. The insured can choose the form that is most advantageous for him, according to the text.
The first of these is a points system that adds up to the insured’s contribution time, which is fixed at 30 years for women and 35 years for men. This total should be 86 for women and 96 for men in 2019 and it goes up gradually until 2033 when it reaches 100 points for women and 105 for men.
The second rule requires the same contribution time, in addition to a pre-established minimum age. This age group rises six months each year: it starts at 56 years for women and 61 years for men and goes up to 65 and 62 years.
The third option envisaged in the text is for those who are two years away from fulfilling the minimum contribution time for retirement, according to the current rule, which is 30 years (woman) and 35 years (man). They may opt for retirement without the minimum age, but the social security factor will be applied, in addition to a “toll” of 50% of the time that is missing.
For a person who is one year old to retire by this rule, for example, the toll is 6 months – that is, she can retire in a year and a half, instead of a year.
For those who will retire by minimum age, the transition is one. The age of women rises gradually (6 months each year) from the current 60 years until reaching 62 years in 2023. The minimum contribution time for men and women also rises 6 months every year: from the current 15 years in 2019 to 20 years in 2029.
According to the professor of the School of Economics, Administration and Accounting at USP (FEA-USP), the transition will be much faster than expected in the 20-year Temer reform.
3. Retirement of the rural worker
Rural workers, who now have differentiated rules, are now at least 60 years old for men and women – the same rule that currently applies to men. The proposal will raise the minimum retirement age for women. Under the current rule, they can retire from the age of 55.
The government also wants to demand 20 years of contribution from rural workers – today, there is a minimum rural activity time of 15 years. Another novelty is that a minimum annual amount of social security contribution of the family group, of R $ 600, is now required. Today, there is no such charge.
4. INSS benefits calculation rule
The benefits of the new Pension Plan will be calculated as follows: 60% of the average contribution salary, plus 2 percentage points for each contribution year exceeding 20 years.
That is: a person who contributes for 30 years will have a benefit of 80% of the average contribution salary. That means you need to complete 40 years of contribution to be entitled to 100% of the value.
The percentage may even exceed 100%, according to the government, but not in the transition rule, when it will be limited to that percentage. In addition, the amount of the benefit cannot be less than a minimum wage (R $ 988) or be above the INSS ceiling (R $ 5,839.45).
For Pedro Fernando Nery, Senate legislative advisor, the change in the calculation formula should not cause a big change in the level of pensions.
On the one hand, with the maintenance of the minimum wage as a social security floor, “most workers will earn more than 100% of their average salary, even contributing the least.” Today, about 66% of the beneficiaries of the General Regime receive a minimum wage.
For the others, the economist says, there should not be so much change in relation to the social security factor, which already requires more or less 40 years to give 100% of the average.
5. Contribution rates
The proposal creates new rules for the contribution of workers during the working age, for both employees and private sector workers.
Today, INSS taxpayers pay between 8% and 11% of the entire salary, depending on the level of income.
This model would be replaced by a table whose rates apply to different ranges of remuneration, such as income tax. In practice, effective rates vary from 7.5% for those who receive up to a minimum wage to 11.68% for those who earn from R $ 3,000.
For example, a person with a salary of R $ 1,250 would pay 7.5% of the minimum wage (R $ 998) and 9% of the other R $ 252, with an effective rate of 7.8%.
As the minimum rate is reduced from 8% to 7.5%, the government estimates that approximately 20 million INSS taxpayers will reduce this contribution rate.
The same calculation table will apply to functionalism. With the difference that, for those employees who are entitled to retire with full salary today – those who joined the service before the reform in 2003 – will be subject to higher rates, which may reach 22% for those who receive more than R $ 39 thousand.
Today, public servants who entered through 2013 and did not join the Federal Public Server Supplementary Pension Foundation (Funpresp) pay 11% overall maturity. Those who joined the supplementary system pay 11% up to the ceiling of the general regime.
According to Felipe Bruno, Mercer’s pension plan leader in Brazil, the rate change, which has the potential to have a significant impact on the salaries of the servants, can generate a strong negative reaction on the part of the civil servants.
“This is one of the most controversial topics in the text, along with the change in the BPC and the end of the termination penalty (40% of the value of deposits in the FGTS) for employees who are already retired.”
6. Public Servers
The minimum retirement age for civil servants is 55 for women and 60 for men for 62 and 65, the same as for private sector workers.
The minimum contribution time goes from 35 years for men and 30 for women to 25 years, with the requirement of 10 years of public service and 5 years of time in the position in force.
The minimum age of 65 for men and 62 for women also applies to those employees who entered the public sector before 2003 and who still have the right to retire, receiving the last salary in full – the so-called wholeness.
The transition rule of the Private Pension Scheme (RPPS) also provides for a system of the sum of points with age and contribution time ranging from 2019 to 2033.
For women, the sum of age and contribution time gradually rises from 86 in 2019 to 100 in 2033, while for men the points increase from 96 in 2019 to 105 in 2028.
7. Teachers, police and penitentiary agents
The teachers who work in the private sector – that is, they are linked to the INSS – are now 60 years old for retirement and a contribution time of 30 years. The current rule for this category does not bring an age group and requires exclusively 25-year contribution time for women and 30 for men.
For teachers working in the public service, an age of 50 is required today (women) and 55 (men). The proposal provides for 60 years and 30 years of contribution for both, in addition to 10 years of public service and at least 5 years in office.
The government also proposes a minimum age of 55 for men and women who are civil and federal police, as well as penitentiary agents. The proposal also requires 30 years of contribution for men and 25 years for women.
Civil and federal police officers do not have, according to the current rule, minimum age.
Prison officers, as they function today, are subject to the general rules of retirement. If the PEC is approved, they will have a special retirement rule – which is a historic fight of the category, whose representatives even invaded the National Congress during the course of the previous government pension reform proposal.
8. Death pension
The proposal equals the rules for public and private service. The benefit will be 60% of the INSS ceiling, with a further 10% per additional dependent, until it reaches the ceiling value, which today is R $ 5,839.45.
The change is particularly harsh with the beneficiaries of the Regime itself, who now receive 100% of the benefit up to the INSS ceiling plus 70% of that ceiling.
In practice, someone who is entitled to a pension on the death of a server that received $ 10,000, for example – which today would be entitled to approximately R $ 8,751.8 (R $ 5,839.45 plus 70% of R $ 4,160.55 ) -, it receives R $ 3,503.7 – being able to reach 5,839.45, if it has 5 children.
In the Regime itself, the rule in force today is that pensions should equal 100% of the remuneration used as a calculation basis, respecting the INSS ceiling.
9. Social assistance and salary bonus
I pay today to those over 65 years of age in a situation of miserability – with a per capita family income of a quarter of a minimum wage – and the disabled, the Continuous Benefit Benefit (BPC) had the rules maintained for the latter group and modified for the elderly.
For these people, the benefit becomes “phasic”: for those who have 60 and over, the payment will be $ 400; for those who have more than 70, a minimum wage.
Bruno, of the consulting firm Mercer, considers this one of the most sensitive points of the proposal.
“While the change in rates (of contribution, especially for the servants) could bring a more positive view of the people regarding the reform, the change in the BPC can bring a negative weight of public perception and make difficult the process,” he says.
Nery, the co-author of Pension Reform – Why Brazil Can not Wait, ponders that the new rule extends benefit coverage, but may be tougher for some policyholders.
Someone with 17 years of contribution and age 65, for example, would have guaranteed a minimum wage by the current rule in retirement by age.
Under the new rule, the 17-year-old would not guarantee him the retirement by age, whose shortage rises to 20 years in the proposal, and the age to receive the minimum wage in the BPC rose from 65 to 70. It would only benefit R $ 400.
“As a result, there is a positive fiscal impact for the state, so it is unclear whether the gain in terms of the fight against poverty increases with the increase in coverage, which is offset by the increase in the income gap between 65 and 70.”
In government accounts, along with the change in payroll rules – which is paid only to those earning up to one minimum wage, and not two more – the measure would bring savings of $ 182.2 billion over 10 years.
This represents 17% of the total economy forecast with the PEC of the “New Social Security”, of just over R $ 1 trillion.
10. Capitalization option for new insured persons
The system of individual accounts will be an alternative to the pay-as-you-go system for those entering the labor market after approval of the package.
The capitalization will follow the defined contribution scheme, in which the worker will receive in retirement what to save in working age, with a minimum wage guarantee for those who can not save enough.
The change, however, will not be regulated by the PEC, but by a Draft, Complementary Law that will be processed separately and that will be formulated by another working group.
Luís Eduardo Afonso, from the Faculty of Economics and Administration of the University of São Paulo (FEA-USP), points out that there are still many vacant points in the proposal to adopt the capitalization regime.
“There is still a lot of information missing, which ends up generating insecurity and anxiety on the part of the market and public perception,” agrees Mercer’s Bruno.
“Another (frustrating) point is the issue of the military. Maybe there was an expectation that this issue would be addressed now,” he added.
By the proposal of the government, all the new parliamentarians begin to retire by the rules of the RGPS and, therefore, no longer have the right to special retirement.
In this case, the transition rule raises the minimum age for men to 65 and the age of women to 62 years, as in the general regime, and stipulates that 30 percent of the contribution time remaining for the age of 35 is to be collected.
12. Trigger: Constant increase in the minimum age
From January 2024, there will be a minimum age adjustment for all categories every 4 years. This increase will occur according to the expectation of survival of Brazilians from the age of 65.
That is, when the expected life expectancy of the elderly increases, so will the age at which they retire.
The ages will increase 75% of the time of increase in the expectation of survival of the Brazilians. If this expectation rises 12 months, for example, the increase in the minimum age is 9 months.