Friday, March 3, 2017
Geronto-Generosity: Brazil's Pensions
Brazil has become one of the most generous countries for retirement. The normal age of retirement is around 58 in Brazil which, is lower than the United States and Mexico by a significant amount. This has a huge impact in their economic standing and could lead to an economic crisis in the future.
Historically, this pension system came out of their 1988 reforms to their constitution and gave more rights to the people after the military presence many citizens lived under. On average, people retire at 58 however, there are groups of people that retire earlier than that. For example, female teachers and widows have significant pension benefits like early retirement and being able to secure their spouses pension as well as their own.
This creates many problems for Brazil's economy, The Economist details, that as a share of GDP Brazil spends 50% more on pensions than OECD average. In addition, with a budget deficit of around 8.5%, pensions account for more than half of the deficit. Since spending on pensions is so high it impacts the role of the state in other areas such as education, healthcare and infrastructure and it removes people from the workforce. This creates an economy that is not able to grow due to the heavy impact of pensions.
To combat this growing pension problem, the current President Michel Temer, has enacted reforms. He wants create a minimum pension age for everyone, have to contribute for 25 years and people cannot receive more than one pension. Getting these reforms through the Congress in Brazil is going to be hard and opposition to this is great.
It will be interesting to see how Congress responds to the attempted reforms of the pension system however, it is likely that without reforms, there will be a deepening economic crisis in Brazil leading to even more issues. It is also alarming to see that with pension spending so high it is creating strain on other areas like education, healthcare and infrastructure which are important in society.
http://www.economist.com/news/leaders/21717381-last-government-dealing-threat-countrys-future-fixing-brazils-pension
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2 comments:
As a citizen, I have experienced such "benefits" being provided to the country's citizens. In order of attempting to establish some sort of welfare state, the country's officials have their values all mixed up and not thinking ahead, not considering the big picture. Given that these policies have been in place for a few decades, opposition will indeed be great for citizens have become accustomed to such pension benefits and, in some ways, settled on such dependence. In turn, this leads to a lack of incentive to participate in the work force and increase the labor union, consequently improving the country's overall GDP.
I agree with Patrick, If you remove the incentive to be productive and contribute to the growth of the economy then further issues will be created where the "benefits" may be not be able be enough to cover costs of living if inflation goes up or the government will run out of money to lend out these benefits. The government needs to consider finding ways to motivate people to put their benefits into a savings accounts that can help stimulate growth through investment and improve the country's overall GDP in the long term.
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