Economy

Social Security Reform's main text is approved by the House of Representatives

The passing of the proposed bill in the Senate can still undergo significant changes

Rodrigo Maia, the president of the Brazilian Parliament.
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  • Basic text of the Social Security reform approved in the second round, by 370 votes to 124;
  • The bill sets a minimum retirement age of 65, if male, and 62, if female, both affecting private sector workers and federal civil servants, and provides savings of $235.4 billion (or 933.5 billion reais) over ten years;
  • In the Senate, there is a high expectation that states and municipalities will be included in the reform.

Brazilian Members of Congress (MOCs) approved in the early hours of this Wednesday the basic text of the Social Security reform in the second round, by 370 votes to 124 – according to Brazilian legislation, this reform is a constitutional amendment, which means that the minimum number of votes needed is 308.

The discussion of the bill continues today in the Senate, and much can still change, since voting on the proposed amendments to the main text will happen today.

The bill sets a minimum retirement age of 65, if male, and 62, if female, both affecting private sector workers and federal civil servants — retirement age for military officials and politicians is still being negotiated and will likely incorporate a more rigid regulation.

So far, eight of the proposed amendments to the main text – what Brazilian politicians term as “destaques” or “highlights” – have already been filed, seven of which were proposed by parties that are opposed to the government of Jair Bolsonaro and only one in favour of the reform.

To the Brazilian newspaper Valor Econômico, Rodrigo Maia, the Speaker of the House of Representatives, said he is confident that the second round of reform will be completed this week. “We need to get over this agenda to move on with other important proposals,” he said.

The approved text is virtually unchanged from its passing in the lower house of Congress in the first round of votes and provides savings of $235.4 billion (or 933.5 billion reais) over ten years. The highlights can change issues such as survivor’s pensions, special retirement for workers subjected to noxious agents, transition rule, and calculation of benefits.

After MOCs are done voting in the House of Representatives, the reform bill goes to the Senate.

In the Senate, there is a high expectation that states and municipalities will be included in the reform – which did not happen in the House of Representatives. Governors are now expected to be convinced of the need to include Federation units in the package, as most of the deficits in states and municipalities refer to spending on retirees and pensioners.

Basically, there is a mismatch between the number of active and retired employees, as well as the amount of benefits. And they all have an actuarial deficit, which means they won’t have the necessary money to cover all projected retirement and pension expenses. Another point that puts pressure on state accounts is that most servants are entitled to special retirement schemes, such as military instructors and police officers and firefighters.

The strategy of the Senate Social Security reform rapporteur Tasso Jereissati is to approve the text as it arrives and to create a parallel PEC (Proposed Amendment to the Constitution), with the necessary changes in states and municipalities.

The Social Security Reform can impact interest rates positively

In a statement released on Tuesday, a week after the 0.5 percentage point cut in the Brazilian interest rate, the Monetary Policy Committee of the Brazilian Central Bank said that the Social Security Reform should gradually lower the structural interest rate, which would lead to the highest growth – without generating inflationary pressure – in the country.

Among the reasons for this is the increase in public savings – due to the slower pace in public spending and private savings – since, in the Brazilian Central Bank’s view, the population would be more encouraged to save for retirement.

This second point depends on a certain level of financial education that Brazilians do not yet have, but the increase in the acquiring of private pension plans in recent years, especially after the intensification of discussions about the reform, showed that this may be changing.