Minister: real increase in retirement pension a risk to minimum wage policy

Brazil's Social Security Minister Carlos Eduardo Gabas says the government will work to strike down the Senate's move aimed at setting the adjustment in the retirement pension in line with the minimum wage formula, which stipulates indexing based on inflation and the economic growth from two years back. The bill was approved at the Chamber of Deputies on Wednesday (Jun 24). Even though no effects of the measure should be felt this year or the next, on account of the negative variation of the country's gross domestic product, Gabas argues that the government is concerned with the principle set forth by the bill, which, by planning adjustments for all retirees, puts the very minimum wage policy at risk. “This logic is misguided,” he told Agência Brasil during an interview.

Agência Brasil: The Chamber of Deputies approved on Wednesday the adjustment of all retirement pensions according to the minimum wage formula, which is based on the inflation and the GDP from the two previous years. Even lower house speaker Eduardo Cunha (PMDB) says the Chamber has gone too far. What is the government going to do?

Carlos Gabas: We're going to work towards a change as soon as the [issue] is voted at the Senate. One must not associate two things that bear no connection with each other. In addition to an impact estimated as high as $2.9 billion, the logic is misguided. In fact, this adjustment of retirement pensions approved by the Chamber poses a risk to the very policy for raising the minimum wage. There's no point in raising all of the benefits in the country's retirement plan in line with the GDP. This what's kept us concerned. We've submitted to the National Congress a set of measures to balance social security accounts, and keep the scenario for future generations predictable and sustainable. And along come the congressmen, passing a move in the opposite direction. The allocation regime, which is our model, is an intergenerational pact. Those working today pay for those who have retired. If you lower the number of people working and raise the number of people being paid, you have a problem.

Agência Brasil: So what is the proportion in Brazil at the moment?

Gabas: Today, the population ratio is nine active to one retired, but this has plunged drastically. We'll get to 2030 with five to one and 2050 with two to one. No system can sustain that, because workers contribute with a rate of eight to eleven percent of their salary, and, when a worker retires, he/she gets his/her full salary. Brazil's average retirement age is 54, and people are living up to 86. Many are paid for longer than they have paid. That doesn't make things even, so we have to make changes.

Agência Brasil: How can this affect the fiscal adjustment?

Gabas: Every extra expenditure in a sector comes from the Treasury, and will be missed somewhere else. The purpose of the adjustment is making the government capable of bringing back investment, generating growth, revenue, income distribution, gains for active workers, retired workers—the whole country benefits. When there's economic stagnation, nobody benefits.

Agência Brasil: Among the changes proposed by the government thus far, what has actually become a rule?

Gabas: Among the rules is a grace period for pensioners—two years for marriage or civil union and 18 months of contribution. Values have remained unchanged, but they're no longer lifelong pensions for all ages. For young people, the duration is limited. Spouses or dependents who have committed a crime against the insured party are not entitled to a pension.

Agência Brasil: Is Brazil's retirement age low compared to other countries'?

Gabas: It's among the lowest in the world, and the worst part is that there's no minimum age required in Brazil. It's among the few countries that allow retirement due to contribution time. Women are allowed to retire after 30 years of contribution, and men after 35. If a woman starts working at the age of 15, she may retire at 45. It's too early.

Agência Brasil: Trade union centers say poorer workers start working at a younger age, and reach retirement age earlier.

Gabas: People who use their contribution time to retire amount to less than 30% of the total. Over 70% request retirement due to age, men at 65 and women at 60—these people cause no effect on the social security factor. Many fail to reach the minimum contribution time because of gaps in it, which prevent them from getting full 35 years of employment.

Agência Brasil: Is the government planning on negotiating with the trade unions?

Gabas: We're going to have a debate. We'll have the opportunity to show all these figures at the National Forum for Social Security and Labor, which was created by President Dilma Rousseff on April 30. We're going to promote a comprehensive debate with society about all these issues.

Agência Brasil: Provisional Measure 676, submitted to Congress last week, starts with an 85/95 formula [age plus contribution time for women and men] and aims to reach 90/100 by 2022. Will that be enough to balance the accounts for the future?

Gabas: I don't think so, because life expectancy's still on the rise. It ends at 90/100 because this formula is the equivalent of a minimum age for retirement. For a man with a 35-year contribution time to reach 100 he has to be 65 years old.

Agência Brasil: As per the provisional measure, those applying today get higher retirement pensions than those who applied, say, last month. Does the government fear lawsuits?

Gabas: A decision has already been made by the Federal Supreme Court, according to which the applying rule is the one in effect when the request is filed.

Agência Brasil: What's your view on the fiscal adjustment? Is it going to be capable of implementing the necessary changes quickly enough to make the economy grow next year?

Gabas: I'm no economist, but I believe that what [Finance Minister] Joaquim Levy has proposed gives us a good sign of austerity in the economy, in spending, and foreshadows economic growth as of next year. I think the economy will start recovering in the second semester this year. The GDP shouldn't face any impact this year, but a prediction of growth for next year is possible. I think the matter is being tackled.  In a scenario stricken by financial crisis and a number of difficulties facing the government at Congress, the governing base, I think passing what we have approved is key.

Translated by Fabrício Ferreira