Government publishes new rules for pension calculation

The federal government has come up with an alternative to vetoing a proposed pension reform approved by Congress. On Thursday (June 18), it issued a temporary presidential decree governing the calculation for social security pensions that will raise the eligibility requirement incrementally as of 2017.

At a news conference arranged to explain the budgetary impact of the new rules, Planning Minister Nelson Barbosa said the government hopes that with the progressive increase in the formula for calculating pensions, the impact on the Social Security coffers will be about $16 billion lower until 2026. Moreover, he said, the impact on the country's public accounts is expected to shrink 0.5 percentage points of the Gross Domestic Product (GDP) from 2030 on.

Under the presidential decree, pensioners eligible to retire based on the contribution time rule may choose not to apply the so-called “Social Security factor”, an existing parameter in the pension calculation designed to encourage workers to delay their retirement by reducing pension benefits for people retiring earlier than the minimum age of 60 (women) or 65 (men). The age thresholds are based on life expectancy as reported on an annual basis by Brazil's official census bureau, the Brazilian Institute of Geography and Statistics (IBGE). Those opting out of the Social Security factor must meet another requirement: the sum of the retiree's age and Social Security contribution years as of the date of retirement application must be 95 or greater for men, observing the minimum contribution time of 35 years, or 85 or greater for women, observing the minimum of 30 contribution years. The number 85 in reference to women's retirement is a sum of at least 30 years of contribution and 55 years of age, and 95 for men is a sum of 35 contribution years and age 60.

The formula – which became known as 85/95 and was meant to supersede the Social Security factor – was approved by Congress. However, the government had already hinted it would veto the Congress proposal. According to Social Security Minister Carlos Gabas, should the pension calculation proposed by Congress be applied, Brazil would face “chaos” in future years.

So the government introduced incremental changes in the formula applicable as of 2017, adding one point to the factor for both men and women in accordance to the following calendar: January 1st, 2017; January 1st, 2019; January 1st, 2020; January 1st, 2021; and January 1st, 2022, when the factor will stand at 90/100.

On Wednesday (17), the deadline for submitting the presidential veto, the government issued a statement explaining that it would keep the 85/95 rule, but introduce the increments, based on the life expectancy change, in order to ensure the sustainability of Social Security system.

Before the veto, the government's alternative proposal was submitted to trade unions that had been calling for a revocation of the Social Security factor because it reduces pension benefits. Government staff also showed the proposal to the president of Congress, Senator Renan Calheiros. Assembled in a special session, the Congress can override presidential vetoes.

Translated by Mayra Borges

** This article was further edited on 18/06, at 16:01