What's Happening with Pension Reform in Brazil?

On Tuesday, October 22, the Brazilian Senate approved a sweeping overhaul of the country’s pension system by a margin of 60-19. Brazil’s Economy Minister Paulo Guedes said the government was very happy with the results and that Congress had done “a beautiful job”. Senator Davi Alcolumbre, President of the National Congress, applauded the effort, stating, “The Brazilian Congress has passed the greatest pension reform in history.”

The Senate vote was the final step in a constitutional amendment process required to modify pension laws, since the right to retirement benefits is engraved in the country’s 1988 Constitution. President Jair Bolsonaro delivered the pension reform bill to Congress on February 20. Vigorous discussion and multiple amendments offered by the relevant committees in the Chamber of Deputies and the Senate improved the original proposal, according to experts. The reform will be enacted directly by Congress (likely in November) and will enter into force thereafter, marking the first important political victory for the government.

The reform is seen by analysts as the first of a number of structural reforms needed to put the country on a path to higher and sustainable economic growth. Much more complex administrative and tax reforms are next, according to the President of the Chamber of Deputies, Rodrigo Maia. The 49-year old congressman from Rio de Janeiro was credited as the political architect of the social security reform and emerged from the process as a powerful and consequential leader, dubbed by the media as Brazil’s “prime minister”.

Brazil’s pension reform will directly affect 72 million individuals between public and private sector workers, and outlines a number of requirements for receiving pension—the most notable alteration being the imposition of a minimum retirement age for private sector workers, now 65 for men and 62 for women, up from averages of 56 and 53, according to the Organization for Economic Co-operation and Development (OECD). Contribution and minimum age requirements change in regards to some professions, principally rural workers, professors, and federal police.

The government predicts R$800 billion ($197 billion) in savings over the next decade as a result of the reform, down from the R$1.2 trillion ($290 billion) projected by Guedes’ economic team in February of this year. The amount received will depend on the years of contribution, with those working the minimum—15 years for women and 20 for men—receiving 60 percent of median salary; and those who work the maximum—40 years for women and 45 for men—receiving 110 percent.

Although this bill represents a needed win for President Bolsonaro and Minister Paulo Guedes, it remains to be seen whether pension reform will truly serve as a launch pad for the Brazilian economy, awaiting a number of additional fiscal reforms that have yet to be introduced and approved.  

2019 PENSION REFORM TRACKER

In Brazil, a constitutional amendment (PEC) is required to modify pension laws because the right to retirement benefits is engraved in the 1988 Constitution. As a result, Congress must hold numerous committee and chamber votes on the measure, and ultimately three-fifths of Congress (308 votes in the House and 49 votes in the Senate) must vote in favor of reform—and pension reform is almost always unpopular. Once approved by the two chambers, however, the proposal does not go to the president for sanction or veto; it is directly enacted by Congress. 

Read “The Case for Pension Reform in Brazil: An Unequal and Exhausted Retirement System on the Verge of Collapse.”

October 23, 2019

• After eight months, since its arrival in the lower House in February, Congress approves social security reform with the Senate's last voting session on amendments.

• The approved text will now be enacted by Congress. The new retirement rules will take effect on the date of enactment, except for contribution rates, which become effective after 90 days.

October 22, 2019

• The Senate approves the main text of the pension reform (changes for civil servants and private-sector workers) by a margin of 60-19.
• Senate President Davi Alcolumbre suspends debate on amendments and convenes a session to conclude the voting on Wednesday, October 23.

October 1, 2019

• Brazil's Senate approves the main text of the pension reform bill in a first-round vote, with 56 in favor, 19 opposed, and one abstention, following approval from the Senate's CCJ earlier in the day.

• An amendment that would reduce year-end bonus salary payments to low-paid workers was rejected. 

• Senators will resume debate next week, in hopes of moving the bill to a second-round and final vote by Thursday, October 10. 

September 4, 2019

• The Senate's Committee of Constitution and Justice (CCJ) approves Senator Tasso Jereisati's report on the pension reform by a vote of 18-7. The measure will now go to the Senate floor. 

• The committee also voted to create a parallel bill that would include state and municipal pension systems, expected to save local governments R$350 million (approximately $85 million) over 10 years. 

August 13, 2019

• Senate party leaders finalize a timetable for processing the pension reform proposal in the upper House, and estimate the bill will undergo its first round of voting in plenary on September 18, followed by a second round on October 2.

• The bill's rapporteur, Senator Tasso Jereissati says that the text approved by the Chamber of Deputies is "great" and that any additional changes should be made by a parallel constitutional amendment (PEC), as to avoid the bill's return to the Chamber of Deputies for review.

August 6, 2019

• The pension reform is approved in a second round of voting in the lower House of Congress, with 370 votes in favor and 124 votes against.
• Following voting on amendments, House Speaker Rodrigo Maia will send the bill to the Senate where it will be analyzed and subject to two more rounds of voting. President of the Senate, Davi Alcolumbre, estimates that voting in the upper House will begin within 45-60 days. 

July 10, 2019

• The lower House of Congress approves the main text of the bill by an overwhelming margin, 379 to 131, after nine hours of debate on Wednesday.
• Congress takes up consideration of amendments. Following amendments, the full text must be submitted to a final second vote in the lower House, expected to take place in August after a July 18-31 recess.

July 4, 2019

• Pension reform is approved in the House's Special Committee, with 36 votes in favor and 13 votes against. The Special Committee vote was a major challenge for the government and dragged over two days.
• Amendments were proposed to exclude teachers from the reform and to make rules for public security agents more flexible. Both were defeated.
• House speaker Rodrigo Maia said he expects the lower Congressional House to begin voting on the pension reform bill on Tuesday, July 9. The pension reform needs at least 308 votes in two voting rounds, equivalent to three-fifths of representatives in the lower House.

May 28, 2019

• The bancada feminina (women’s caucus) has formed a working group to study the impact of the pension reform proposal on women. The group drafted four amendments: to the minimum retirement age (including a separate, lower minimum for rural female workers), benefits calculation, maternity rights for female workers, and pension upon death.
• There are currently 54 proposed amendmentsbefore the special committee, 17 of which are related to public security. The number of amendments is likely to climb, as federal deputies have until May 30th to present their changes. 

May 8, 2019

• Minister of Finance Paulo Guedes participates in a public hearing before the House’s Special Committee, arguing that the current pension system creates privileges and is unsustainable. According to Guedes, approval of his reform will generate R$1,236 trillion (US$309 billion) in savings and will stimulate the economy. He also states that the proposal allows for the creation of a capitalization system, in which each individual has a savings account and is guaranteed future pension payments.
• The Secretary of Pension and Labor, Rogério Marinho, presented and explained the government’s projections and studies, arguing that the proposal will promote equity, generate positive fiscal impact, and combat fraud.
• Minority parties expressed concerns regarding the capitalization system and doubts about the positive impact the reform is expected to have on the economy. Moreover, 13 parties expressed the intention to introduce modifications to the proposal regarding rural pensions, benefits to disabled people, and underprivileged elders.

May 7, 2019

• The House's Special Committee begins analyzing the merits of the proposed bill. There will be 11 public hearings with about 60 guests to discuss the topic of social security and the proposed reform. The committee's chairman, Marcelo Ramos, says he will work to approve the bill and deliver its analysis to the House plenary by July. 

• Polling by the Brazilian National Confederation of Industry (CNI) indicates that the amount of people who believe pension reform to be necessary increased to 72 percent in 2019, from 65 percent in 2015. However, only 39 percent of people favor the current proposal, and only 36 percent of respondents affirmed that they understand the main points of the pension reform bill.

April 23, 2019

• After 62 days, the House's CCJ approves the pension reform proposal by 48 votes to 18. There were no abstentions. The bill was approved with minor changes, after four elements were removed from the text.

• The proposal will now move to the House's Special Committee for further analysis and discussion.

April 17, 2019

• The House's constitution committee delays the vote on pension reform for another week.

• Despite the rapporteur's recommendation for the total approval of the project, opposition lawmakers managed to push back the first of several votes needed to approve the bill.

• Leaders from the political center demand that five points be removed from the proposal: 1. the change in rules regarding salary bonuses; 2. the change regarding the age of compulsory retirement of Supreme Court justices; 3. the change in the forum used in cases of judicial action against the INSS (National Institute of Social Security); 4. the change in the FGTS (Guarantee Fund for Length of Service) and 5. the change that removed retirement rules from the Federal Constitution.

• The leader of the PSL party at the House, Delgado Waldir, denied that the postponement is a defeat. He stated that it is part of the process so that the bill reaches its best version.

April 1, 2019

• The Minister of Finance, Paulo Guedes, will attend a public hearing at the CCJ on Wednesday, April 3 to explain the proposal to the commission. Francischini estimated that the CCJ should then vote on the proposal by April 17.

• Despite the political conflict that took place last week, support for pension reform in the Chamber of Deputies grew by 15 percent in the past two weeks, based on monitoring from Atlas Político. 308 votes are required for approval, but 199 deputies remain undecided. 

March 20, 2019

• Upon returning to Brasilia, President Jair Bolsonaro delivers the pension proposal for the military to Congress. The proposal increases the minimum years of service required to retire, changes the age limit for transfer to the reserve, reduces the number of dependents allowed, and foresees the levying of a tax on the gross income of the military in all categories. The government is expected to save R$10.45 billion (US$2.77 billion) over 10 years with the changes. The full proposal (in Portuguese) can be read here.

March 13, 2019

• Lower House sets up its Committee of Constitution and Justice (CCJ) to analyze the government’s proposal to overhaul Brazil’s pension system, and first-term Congressman Felipe Francischini (PSL-PR) is elected as the CCJ’s new president. The Commission is given five sessions to discuss the proposal. 

• The Ministry of Defense submits a military pension proposal to the Ministry of Finance. The changes in the proposal are considered less aggressive than those stipulated for civilians. Defense Minister General Azevedo e Silva confirmed that the final text will be sent to Congress on March 20.  

February 26, 2019

• Opinion research released by the National Confederation of Transportation (CNT) finds that 45.6 percent of the population reject the pension reform proposal and 43.4 percent approve it. Polling was carried out in 137 municipalities in all 25 states.

• Bolsonaro holds a meeting with party leaders to discuss the proposal. 

February 20, 2019

• President Jair Bolsonaro delivers long-awaited pension reform bill to Congress. A presentation of the proposal drafted by the economic team is available in Portuguese. 

• To learn what steps the bill must take in Congress to get approved, check out our infographic below:

Image by Agência Brasil