Advanced Search

LatinNews Regional Monitor: Brazil & Southern Cone - 9 January 2019

Click here for printer friendly version
Click here for full report

Brazil’s Guedes gives indications on pension reform

Development: On 8 January, Brazil’s Economy Minister Paulo Guedes gave further indications on what a likely pension reform would look like, calling the current system “doomed”.

Significance: The unsustainable nature of Brazil’s current pensions system means that a reform is urgently needed, and it is accordingly one of the flagship measures put forward by the new government of President Jair Bolsonaro. The specifics of a pension reform have remained the object of speculation as different suggestions have come from within Bolsonaro’s government, and Guedes’ latest comments bring some much-awaited clarifications on the matter.  

  • Speaking to the press yesterday after a meeting with Chief-of-staff Onyx Lorenzoni, Guedes discarded the possibility of passing the pension reform through piecemeal bills, an option Bolsonaro had previously considered.
  • Guedes spoke of a reform in two stages, with an initial focus on transforming the current system through the implementation of measures such as a minimum retirement age. The second stage would concentrate on the long term with the creation of a new system to be applied to workers as they enter the labour force.
  • Guedes confirmed that he is working on introducing a capitalisation system, wherein workers contribute to their own pension pot (under the present system, current workers pay for the pension of retirees). “A capitalisation system…is a lot more robust, [although] it’s more difficult, the cost of transition is high. But we are working for the future generations,” Guedes said, acknowledging the challenges ahead.
  • Additionally, Guedes and Lorenzoni announced that they will present a provisional decree to Bolsonaro today (9 January) which aims to curb fraud and undue privileges in the social security institute (INSS, responsible for distributing pensions). Guedes says that combatting fraud within the INSS could save the government between R$17bn and R$20bn (US$4.6bn-US$5.4bn) over the coming year. The decree will be effective immediately if Bolsonaro approves the text, although it must then be ratified by congress within 120 days to become definitive.  

Looking Ahead: Lorenzoni said that a revised version of the pension reform, including Guedes’ plans for a capitalisation system, will be presented to Bolsonaro next week, with the aim of putting it to the new congress as soon as it returns from recess on 1 February.