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Bolsonaro's economic team to create pension capitalization system


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According to Market Intelligence, April 2023

Bolsonaro's economic team to create pension capitalization system

Brazilian banks, insurance companies and the pension funds of state-run entities would be able to compete to administer the retirement funds of individual workers under social security reforms being formulated by the economic team of President-elect Jair Bolsonaro, Folha de S.Paulo reported.

In a bid to lower labor costs and create new jobs, the economic team, led by incoming Finance Minister Paulo Guedes, retirement funds will be made more flexible, with workers having the option to change the fund manager seeking better rates, boosting competition in the sector.

Under the plan, only new participants in the labor market would be able to join the new scheme and companies would not have the option to bring additional capital to the funds and be required to pay a minimum annual payment to its clients. In addition, individual retirement savings would be made compulsory, according to the publication.

Bolsonaro's transition team estimates the private pension system capitalization plan, which reportedly follows a similar model in Chile, will lower the current social charges on salaries which cover the pension costs of retired workers, leading to an annual GDP growth of around 3.0% to 3.5% in the coming decades.

Meanwhile, workers currently in the market would continue within the current pension system, but a new tax framework would lead the "old system" to re-balance, according to Bolsonaro's team. These measures would reportedly be a part of a set of reforms that would also see the new government privatize state-run companies to tackle Brazil's mounting deficit. The new president takes office in January 2019.

The bill, which is reportedly controversial and lacks sufficient support among lawmakers, will require constitutional amendments, Folha de S.Paulo reported. Bolsonaro, said in a series of interviews that he will look to push for pension reform, and was in talks with the country's current congress and outgoing President Michel Temer.

Itaú Unibanco Holding SA CEO Candido Bracher, recently said approval of a plan to reform the country's pension system would be "an excellent sign for the markets."

Oxford Economics recently called Brazil's public debt "the country's most acute economic problem," driven in large part by an overextended pension system that experts say must be addressed quickly. According to earlier reports, the country is running a fiscal deficit equal to 7.00% of GDP. Its public debt pile amounts to 77.3% of GDP and generates an annual interest rate bill of 418.5 billion reais.

As of Nov. 9, US$1 was equivalent to 3.76 Brazilian reais.