After decades of a lax social security system, Brazil is finally reforming the program to benefit older citizens — and some hope it could bolster the country’s economy as a whole.
Their version of social security is generous — a little too generous, critics say. Like the U.S., it is a pay-as-you-go program, but there is no set retirement age, which means after workers reach the minimum number of work credits they need, they can claim benefits. The country is also suffering from rapid aging, so under the current framework, there will soon be too many retirees claiming benefits and not enough workers to support them.
“The system is unsustainable,” said Leandro Palmeira, director of research at the Longevity Institute and chief of staff at Mongeral Aegon in Brazil.
The pension system is affecting the country’s economy, leaving less money for other important social programs, such as education and public security. Less than 10% of the population is over 60 years old, and yet Brazil spends 14% of its current gross domestic product on its pension. “If you look at the projections, we will reach something like 25% or 26% of total population over age 60 in a few decades, and the trajectory of spending on pensions will explode if we don’t do something now,” Palmeira said.
Brazil’s lawmakers have done something. The legislators’ proposals would set a minimum retirement age for when citizens can claim their benefits — 65 for men and 62 for women working in the private sector — unlike the current system that allows people to begin claiming in their 50s, or anytime after working between 30 and 35 years. The bill, which passed through the lower house in July but has yet to make it through the Senate, would also increase contributions from the current workforce. The reform could save the public the equivalent of $247 billion over a decade, according to the government. Voting is expected by the end of September.
The Senate is also weighing a plan to introduce individual retirement plans, though that may end up in a separate proposal.
Retirement across the globe has changed. In the U.S. Only a few decades ago, it was common to retire around 65 and collect Social Security for a few years before passing away. Now, Americans — and most others around the world — can expect to live longer, healthier lives, and they may want or need to work during a part of this chapter.
“We have the potential to live longer than anyone else in history, and that is putting a tremendous strain on retirement systems around the world,” said Catherine Collinson, chief executive officer and president of nonprofit Transamerica Institute and Transamerica Center for Retirement Studies. Some of the changes Brazil has proposed, such as increasing the retirement age (or in this case, creating one), are not easy to pass, she added.
Still, it may be the only way to ensure retirement security for all — and bolster the economy as a whole — for Brazil. “It will be harder to be a retiree in Brazil,” Palmeira said. “Our parents and grandparents lived in a country where it was very easy to become a retiree, and this scenario is changing because the world has changed. The country has changed.”