November, 2019 – Brazil – Rossetti Advogados
On November 12, 2019, the Brazilian Congress enacted Amendment to Constitution No. 103, which instituted the Brazilian social security reform.
The social security reform has been under discussion over the last few years, and it is being done at an important time for Brazil, as the country has been experiencing difficulties in resuming growth and this should help restore market confidence in the economy.
According to government estimates, the reform could generate savings of 900 billion Reais(30% above investors’ expectations at the time the amendment to the constitution was being discussed in the Congress), as well as help to solve the fiscal problem currently faced by the country, where spending exceeds revenue.
In addition, the reform shall adjust the social-security system, rendering it more compatible with current life expectancy in Brazil. Presently, in just one year, the social security gap has increased by about 8%. For the most part, the growth in spending was due to the payments to private sector retirees, which have increased by 7%.
At this rate of increase in the number of people retiring, projections indicate that current generations were at risk of receiving much less or even not receiving this benefit.
In the economy, the social security reform helps to restore the confidence of the Brazilian business community and foreign investors, to encourage them to make new investments for growth, which generates new jobs and increases consumption, and helps in the country’s economic recovery.
The reform also promotes the continuity of lower interest rates. The market expectation is that the Selic rate will remain lower for a longer time, and it could reach 4.50% by the end of 2019.
Since inflation is still slightly below the Central Bank’s target, remaining well controlled and even tending to fall.
Below are the main changes defined by the Social Security reform:
- Minimum age to retire: 62 years for women and 65 years for men;
- Minimum time of contribution: 15 years for both women and men (20 years for men who commence to work after the reform has entered into force);
- Calculation of the pension amount: women will have to contribute for 35 years to receive 100% of the pension amount, and men for 40 years;
- Calculation of average wages: the average will be calculated based on 100% of wages; currently, only the 80% highest wages since 1994 are used and the lowest 20% are disregarded;
- Public servants: women can retire at 62 and men at 65, both with at least 25 years of contribution, 10 years in the public service and 5 years in the same position;
- Transition: those who are in the labor market may fall under one of the transition rules to retire earlier; and
- New calculation of the amount of the survivor’s pension: 50% of the pension plus 10% per dependent, it being understood that the pension cannot be lower than one time the minimum wage.
This article is based on publicly available information and given for informational purposes only. It is not intended as legal advice or as a comprehensive analysis of the matters referred to herein.