Attanasio, O., Rohwedder, S., 2003, “Pension Wealth and Household Saving: Evidence from Pension Reforms in the United Kingdom,” The American Economic Review 93(5), pp. 1499–1521.
Caetano, Marcelo A., 2008, “Previdência complementar para o serviço público no Brasil”. Sinais Sociais, Vol. 3. No. 8, September/December, Rio de Janeiro: SESC.
Disney, R., 2005, “Household Saving Rates And The Design of Social Security Programmes: Evidence From A Country Panel”, CESifo Working Paper No. 1541.
International Monetary Fund, 2011, The Challenge of Public Pension Reform in Advanced and Emerging Economies, IMF Fiscal Board Paper.
Kumhof, M., D. Laxton, D. Muir, and S. Mursula, 2010, “The Global Integrated Monetary and Fiscal Model (GIMF)—Theoretical Structure”, IMF Working Paper 10/34 (Washington: International Monetary Fund)
Mascarenhas, R., Oliveira, A. and Caetano, M., 2004, “Análise Atuarial da Reforma da Previdência do Funcionalismo Público da União,” Ministério da Previdência Social do Brasil, Coleção Previdência Social, Série Estudos, Vol. 21.
Medici, A., 2004, “The Political Economy of Reform in Brazil’s Civil Servant Pension Scheme,” Inter American Development Bank, Technical Note on Pension No. 002.
U.S. Social Security Administration, 2009, Social Security Programs Throughout the World: The Americas, Washington: SSA Publication No. 13-11804.
Prepared by Joana Pereira.
In addition, there is also a growing network of private pension funds (mostly defined contribution). Participation in these schemes is voluntary and the government only plays a regulatory/monitoring role therein.
Applies to federal workers only.
Contribution to Social Security Financing (Contribuição para o Financiamento da Seguridade Social, COFINS) and Social Contribution on Net Profits (Contribuição Social sobre o Lucro Liquido, CSLL).
The average retirement age is 53 for RGPS beneficiaries who contributed a minimum of 35 years (for men) or 30 years (for women). Among retirees who contributed for a shorter period and among RPPS retirees the average age is close to 60.
The estimates are based on the authorities’ actuarial projections of RGPS and RPPS financing needs as of April 2012, as well as of the fiscal impact of the latest reform (see paragraphs 5 to 9) recent FAD projections of public pension increases - IMF Fiscal Board Paper “The Challenge of Public Pension Reform in Advanced and Emerging Economies.”
Furthermore, benefits in the RGPS are subject to an adjustment factor (factor previdenciário)—based on age and length of contributions—which was introduced in 1999 to account for changes in average life expectancy.
Levied on the portion exceeding 60 percent of the RGPS’s benefits ceiling, for all participants.
The minimum retirement age is 53 for men and 48 for women, provided that participants qualify for a full pension by time of contribution.
The defined contribution scheme is to be administered by a newly created Fundação de Previdência Complementar do Servidor Público Federal (Funpresp), divided into three branches for servants in the executive, judiciary and legislative power, respectively. Members of the Funpresp’s Executive Board and Financial Committee are appointed by the government, but the institutions enjoy administrative independence and are subject to a private legal regime (like public enterprises).
A detailed outline of the GIMF model can be found in Kumhof et al (2010). For calculations in this paper, the model features three regions: Brazil, Emerging Asia, and Rest of the World.
We are also assuming that the co-payments by public employers to the optional pension savings accounts are perceived as part of the tax-rate reduction, and participants would take it into account when targeting a desired pension savings amount.
The GIMF features two types of agents: a group of liquidity constrained households (LIQ agents), who do not have access to capital markets, and intertemporal optimizers (OLG agents), who can borrow and save. In this section, we assume that reductions in PAYG benefits affect OLG agents only because in reality only the highest earners will be affected.
To guarantee the dynamic stability of the model, the deficit and debt to GDP ratios need to stabilize in the long run, which in our simulations requires that the fall in primary surplus cannot made permanent. Thus, we assume general transfers to rebound after 2075.
Labor and capital are complementary factors of production in the GIMF.
The World Bank’s Independent Evaluation Group notes a generally small impact on national savings in the short to medium run in its report on Pension Reform and the Development of Pension Systems, An Evaluation, 2006. A number of papers also note a very high (low) substitutability between pension savings with a high (low) actuarial component and other kinds of financial wealth (e.g. Attanasio and Rohwedder (2003) and Disney (2005)), hinting at a low overall impact of these reforms. However, Arnold (2011) points to the generosity of the PAYG pension system as one of the main causes of low savings in Brazil.
Likewise, when the reform produces a net benefit (after 2035) we assume that government consumption rises accordingly. This assumption does not impact significantly the short-to medium term macro-impulses, but it leads to lower government saving rate and higher private savings in the very long run because transfers are permanently lower in this case (see footnote 11).
See footnote 14.
Reform scenarios explored in this section are illustrative.
Staff estimates—based on the total current level of pension and life expectancy at average retirement age—that an increase of 3 years in average retirement ages is needed to produce savings of 2 percent of GDP. Considering a 20 percent lower participation rate for workers older than the current average retirement age, such a rise corresponds approximately to a 7 percent increase of the workforce.
We adjust government consumption so that the target is met. Public investment or taxes could be used instead, although the effects on real GDP will be harder to identify in that case.
See footnote 4.