As the world's sixth largest economy with a sizable portion of its workforce moving to the middle class from lower-wage, lower-skilled positions, Brazil is in a position to learn from generations of pension evolution in other parts of the world.
The current workforce and pool of contributors exceeds beneficiaries by a factor of nearly 3-to-1. Inflation rates have been under control and within a target ceiling of 6.5% as established by the Brazilian central bank. Population has grown 115% in the past 40 years and provides ample pools of able-bodied workers (68% of the population is between 15 and 64 years of age, according to Brazilian Institute Of Geography and Statistics). Other, broader economic factors are trending favorably and should provide for continued contributions into the country's $300 billion pension sector, according to ABRAPP.
Although the country's pension system has the underpinnings of long-term success, the system is wrought with concerns. Brazilian pension systems are viewed as some of the most generous in the world, replacing 75% of average income, according to The Economist. The country spends approximately 13% of its GDP on pension benefits with 35 pensioners for every 100 workers (there are approximately 10 Brazilians over the age of 65 for every 100 between the ages of 15 and 64). Legacy rules, driven by a combination of years worked and age, allow workers to retire at earlier ages with higher benefits than equivalent plans in other developed nations. The average man in Brazil retires at 54 and the average woman retires at 52 – and all pensions must pay the minimum wage (currently about $4,100 per year, but expected to reach around $5,310 per year by 2015, according to the Rio Times). With average life expectancy up by nearly 15 years since 1970, future payouts have the potential to exceed plan resources and reforms will inevitably need to occur, according to a United Nations report.
The majority of these problems are policy driven. All workers might ultimately have to accept reduced benefits and later retirement ages. Younger workers might have to accept higher contribution rates. Employers might have to pay higher payroll taxes. Unfortunately, these issues may not be addressed for several years as they are debated and altered through the legislative process.