The long-waited reform of the Brazilian pension system was approved in late 2019. In Brazil, the right to retirement benefits is guaranteed by the constitution, so it was necessary that a majority of both houses of the Brazilian Congress approve the changes. The goal of the reform is to reduce Brazil’s expenditures on social security pensions, which are among the highest in the world.
The following is a summary of the major changes:
• Minimum Retirement Age
The most significant part of the reform is related to the retirement age. To qualify for the oldpension, men must be age 65 and women must be age 60. The minimum retirement age for women will be raised gradually to age 62 by 2023. Prior to the pension reform, people could retire either based on age or contribution time. With the reform, the minimum ages are fixed, even if the person already has the contribution time.
• Contribution Period
In order to qualify for the old-age pension, men must now contribute to social security for a minimum of 20 years. The contribution period for women remains at 15 years. Before the reform, the contribution period was 15 years for both men and women, and as long as the contribution period had been met, there was no age requirement. It was possible for people to retire with a full pension in their early 50’s. For those already in the workforce at the time of the reform, the contribution period will remain at 15 years for oth men and women.
• Contribution Rates
New contribution rates for Social Security became effective in March 2020 as follows:
• 7.5% of monthly salary up to BRR 1,045.00
(legal minimum wage)
• 9% of monthly salary from BRR 1,045.00 to
• 12% of monthly salary from BRR 2,089.60 to
• 14% of monthly salary from BRR 3,134.40 to
• Calculation of Pension
Prior to the reform, the formula for the retirement pension was 70% of average salary with an additional 1% added for each additional year of service beyond the minimum contribution period. The formula set by the reform is 60% of average salary with 2% added for each additional year of service beyond the minimum contribution period (15 years for women and 20 years for men). Therefore, men must work 40 years and women 35 years to receive the maximum pension (100% of earnings). And average monthly earnings will be calculated based on total covered salary and not the best 80% of covered salary as was done prior to the reform.
• Changes to Benefits
• Death (Dependents’ Pensions) Upon the death of the insured, the pension payable to dependents will be 50% of average salary plus 10% for each additional dependent up to 100%. Prior to the reform, the pension would have started at 100%.
• Disability Pension: The maximum disability pension will be a min. of 60% of the average of the highestsalaries with an additional 2% paid f. each additional year of contributions after 20 years. Prior to the reform, the pension would have started at 100%.
In case of a work accident, the pension is 100% of the average of the highest salaries.
What does this mean for the employer?
While the pension reform itself would have no direct effect on a company’s benefit plans, the indirect impact is that, with the increasing difficulty to retire under the government plan, the supplementary pension plans offered by employers and private pension plan operators become more attractive in general.
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