Two years later, find out what the effects of the Social Security Reform were

Two years ago, the constitutional amendment that reformed the Brazilian social security system took effect. Despite being recent, the Social Security Reform it has already brought changes to the population in relation to the values ​​of INSS benefits and the minimum requirements to apply for retirement.

At the time, the social security deficit, characterized as unsustainable, was the main justification for the reform. However, experts point out that most of the effects, especially for public accounts, should only be felt in the coming years.

The measurement of some more immediate effects with the changes was hampered by the pandemic of Covid-19. In many cases, it is difficult to know whether events linked to the pension system are a consequence of the reform, the pandemic, or both.

The Social Security Reform represents what Luís Eduardo Afonso, professor at FEA-USP, considers to be the biggest change in the system social security Brazilian in the last 50 years. The federal government’s estimate is that, with all the changes, the reform should generate savings of R$855.6 billion to the public coffers in ten years.

Main changes for the population

• Single rule for retirement

For Afonso, one of the main changes that the reform brought was the unification of rules for the pension system for workers in the private and public sectors, the latter at the federal level, establishing a minimum age for retirement.

Now, men can retire if they are 65 years old or older, and women over 62 years old. The need for a minimum contribution period was also maintained, with 15 years being required for women and men who started to contribute before the Social Security reform, and 20 years for men who started contributions after the reform. For the public sector, the minimum contribution time is 25 years.

Before, the insured could retire by age, which required 60 years for women and 65 for men, in addition to 15 years of contribution.

Another option was the contribution period retirement, which required 30 years of contribution for women and 35 years of contribution for men, with no minimum age, but with a discount on the social security factor, an index that reduced the retirement of those who retired a lot. early. There was also the progressive 85/95 formula, which gave pensions based on contribution time without discounting the social security factor when reaching a certain score when adding age and contribution time.

Roberto de Carvalho Santos, president of the Social Security Studies Institute (Ieprev), says that another relevant change with the reform was the calculation to define the benefit amount.

Before, the INSS calculated the average salary considering the 80% highest contribution salaries since July 1994, discarding the lowest contributions. Afterwards, the specific rule of retirement by age or retirement by contribution time was applied.

Now, the benefit is 60% of the average wage of all contribution salaries since July 1994 for those who have completed 15 or 20 years of contribution, with the possibility of adding two percentage points per year of contribution. A woman who has 25 years of contribution, for example, will be entitled to 80% of the average salary.

Santos says that, in general, the values ​​of the benefits fell due to the change in the calculation. “Today, to have the value of the full benefit, a woman needs 35 years of contribution and a man 40 years of contribution”.

People who were already in the labor market when the reform was approved entered the so-called transition rule, with specific requirements to retire. “They are based on criteria such as contribution time, points, minimum age or a toll of 50% or even 100% of the average, depending on the case”, says Adriane Bramante, president of the IBDP (Brazilian Institute of Social Security Law).

In practice, people who were two years out of retirement were the most affected. “Now they need to work another 9, 10, even 12 years to reach one of the transition rules”, he says.

The USP professor also considers that “there are many transition rules that increased during the process, some were even superimposed, and it was even complicated to operationalize and implement this in the granting of benefits”.

According to Santos, the population seeking to retire from 2020 saw an increase in the queue of requests for benefits. For him, this increase may be linked “to the fear of a new reform, or of losing benefits, so those who have acquired rights are asking without studying, or trying to contribute more”.

The reform also changed the death pension rules. Previously, if the insured person who died was retired, the widow received 100% of his/her retirement amount. Now, the value is 50% of the pension, plus 10% for each dependent, limited to 100%. A widow without dependents, for example, will receive 60% of the pension amount of the insured person who died.

For those who are not retired, the INSS calculates the average salary, according to the new rules, and then applies the rule of 50% on the value, plus 10% for each dependent. The amount cannot be less than the minimum wage.

“The large loss of the death pension was even worse with the pandemic because it increased the vulnerability of the beneficiaries. It reduced the calculation basis and the pension percentage, and people only realized this when looking for the benefit and seeing the drop in income”, says Bramante.

In the case of sick pay, the change was in the calculation of the benefit, which is now 91% of the average salary. Before, the 80% highest contribution salaries were considered, discarding the smallest contributions.

Test Generator – distributed by Riddle

Effects for the State

If, on the one hand, the gradual establishment of the minimum age requirement has benefited the population, it should force a new pension reform in the near future, according to specialists.

“The main advance was the establishment of the minimum age, but it is not corrected by life expectancy, which increases with time, so it may be necessary to carry out a new reform in the future”, says Felipe Salto, executive director of the Fiscal Institute Independent (IFI).

According to him, the establishment of the minimum age has always been an important point to reduce social security costs, and it had been discussed since 1990, but had never been approved. Over the years, the social security system had only “incremental advances”, which had little contained the dynamics of the social security deficit.

The deficit exists, basically, because government expenditures to pay benefits are greater than collections. A longer life expectancy means more people receiving the benefit for a longer time, and if the income doesn’t increase, the deficit goes up.

“The reform reduces this deficit over time, but this is at the expense of a reduction in the system’s capacity to redistribute, that is, the value of the benefit ends up being lower than what the person earned before”, says Luís Eduardo Afonso.

For the professor, most of the effects of the reform on the deficit should only be felt in the next few years. One factor that made it difficult to reduce the deficit was the Covid-19 pandemic itself, in which the government suffered a drop in revenue.

“[A situação econômica] should return to the level of before, and then you can start to see these effects better from 2022. Every reform has quick effects, and slower ones. If you keep many rights, it takes longer to take effect”, he says.

Despite this, he believes that most of the points that needed to make up the reform were approved, such as the change in the minimum age, in the calculation of the benefit and in the amount of the pension. Salto also cites a ceiling for the INSS and new parametric rules, generating a more sustainable system.

For Afonso, the main negative absence of the reform was the capitalization system, in which the worker has a kind of savings that will be his own retirement.

He also points out that the minimum contribution period is still low considering the public accounts, and that a progressive increase could have been discussed. Some exceptions, especially for teachers and police officers, are negative, he says.

“I cannot fail to mention the difference in reform for the public and private sectors in relation to the military. They have a different legal framework, they were not covered by the original PEC and could not have been, but their reform was much looser than for the other workers, which is indefensible. The savings are 10 billion over 10 years for their system, it’s not much”, says Afonso.

Salto affirms that another negative point of the reform was the exclusion of social security systems from the civil service of states and municipalities. “Now each one is having to do theirs [reforma], and this can lead to problems because there is a lack of general rules and can lead to divergences”.

According to him, “the dynamics of social security spending in 2021 has been better than expected, but this may be linked to the effects of the pandemic with delays in the INSS or to the reform itself”.

“Comparing the data, we see that from January to September 2019 for the same period in 2020, pension spending grew by 8.3% in real terms. From 2020 to 2021, it had a real drop of 0.5%. It may already be the dynamics of the reform, but it is difficult to attribute causality”, he says.

At the same time, the pension deficit remains high. In 2019 it was BRL 213 billion. In 2020, it rose to BRL 259.1 billion, with the drop in revenue, and in 2021 it is at BRL 225 billion until September.

For him, it would be important for the State to review some tax waivers that are allowed for sectors and companies, which would help to improve revenues. The improvement would be important because forecasts for the economy have been more pessimistic.

“Government revenue has risen but it is something temporary, artificial, due to inflation. It needs a constant source of income,” says Salto.

The president of the IBDP considers that the reform “did not address the cost, it only affected the rights, not the collection”.

For Afonso, the social security system is a puzzle. “Each piece has to make sense thinking about the whole. The Social Security Reform was complex, at the same time it was comprehensive and the biggest in more than 50 years”, he says.