Ribeiro Ferreira: A New Pension Reform

The conclusions drawn here are presented, in greater depth, in my recently published book The fiscal argument in social security: The false clash between social protection and budget scarcityis available on the website of He swears and the Amazon.

Recently, the media reported that the Social Security deficit could quintuple by the year 2100. [1]. The tone is alarming and draws attention, and I confirm that criticism is not directed at the content of the report, as the journalists conveyed exactly what was stated in the National Treasury Accountability Report for the year 2022. – This deserves special attention.

With the appearance of decency, the report indicates that The actuarial projection of the deficit for 2023 is 2.0% and could reach 10.2% in 2100.Based on “On the hypotheses of trends in salary mass, natural growth, inflation rate, real GDP change, salary adjustments and other benefit readjustments, as well as the demographic trend of the IBGE” [2].

The parameters and sources used to calculate the projection of the Social Security result, according to the report, can be seen in the note “Actuarial projection of the general social security system” from the 2022 Balance Sheet of the Union (BGU). You will support the treasury report which in turn will support the report – And here the problem began.

It is true that scientific knowledge Its main feature is verifiability. [3]. It is not enough to say, not even to report the adoption of the rigorous methodology to confirm what was said – Science can be checked, whereas publishing data necessarily requires showing the pathways that led to a particular conclusion.

This is not the case with what I observed in BGU. In Item 60, there is the projection referred to in the report, which states that “Entities providing social benefits are encouraged, but not required, to prepare general purpose accounting reports that provide information about the long-term sustainability of the entity’s financial resources.”

Given this scenario, the note concludes that an attempt has been made “To analyze the international experience in the disclosure of social security”while “The references analyzed were the United States of America (USA) and Canada, which are two of the largest economies in the world, belong to the Organization for Economic Co-operation and Development (OECD) and have systems similar to RGPS” [4].

BGU does not show the criteria for ranking the world’s largest economies – Here, then, the Group of Seven has been adopted as a standard, whose members include Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States. [5]. The second parameter used is that the country has joined the Organization for Economic Co-operation and Development. Well: if all G7 member countries are part of the Organization for Economic Co-operation and Development, what are the reasons for separating the example of Canada and the United States and importing their own disclosure form?

In addition, BGU states that the United States and Canada will have “systems similar to RGPS”. Regarding American pensions, he says so “Saving due privacy, social insurance can be considered equivalent to RGPS and follows the cash basis.” In the case of Canada, “there is a benefit plan […] which, while maintaining the due characteristics, is similar to RGPS” [6]. However, it is not known which characteristics must be preserved in order to import US and Canadian disclosure forms.

Taking Canada as an example, its model is one of the most successful public policy shifts in the country’s history. However, as Bruce Little points out, the success of Canadian Social Security is due to a degree of cooperation between the provinces and the federal government, such that most countries have had a variety of programs that have tried to reach the same level as Canada, but the Canadian system has been firmly rooted in its protective reality [7].

I stress that it would not be superfluous for the report to explain in detail the reasons that might lead to the adoption of models from particular countries – Notwithstanding, the BGU must refer to some study or work analyzing the social security model chosen and attesting to the possibility of importation. Comparative analysis is required “Knowledge of concepts used in countries, and a deep idea of ​​the workings of foreign law, institutions, and society” [8]. Thus, the comparison of Brazilian, American and Canadian models has no theoretical and methodological basis.

OK then. It would be possible to discuss, in a few more paragraphs, the methodological and technical error of this automatic import – But, oddly enough, the same BGU report makes an honest conclusion about the shortcomings of the deficit-measuring mechanisms:

Within the scope of the Brazilian federal government, the best form of RGPS detection is debated.

In this fiscal year and the previous fiscal year, in the Federal Government, keeping in mind the context presented above, the actuarial obligations related to the RGPS were not standardized because they understood that it was necessary to advance the discussion on this topic to improve the national accounting model. However, the table below shows the projection of the RGPS Social Security result for 78 years.

Regardless of the legal text, the two paragraphs can be transcribed as follows: “The US and Canadian systems, although similar to the RGPS, do not contain actuarial verification models applicable to the Brazilian case. In Brazil, the accounting and actuarial model is still under discussion, so it is not certain which would be the best form of disclosure for the RGPS. Although From all of this, here’s a spreadsheet that makes projections for the next 78 years.”

In this way, it would not be wrong to point out that projection, bypassing any scientific criteria, is a real exercise in futurology. Even worse: the conclusions were stated without much concern in the National Treasury Accountability Report 2022 and then published in the media with information that the Social Security deficit could quintuple by 2100.

There is no basis for asserting the horrific future of Social Security, as National Treasury and BGU reports seem to intend. However, unfortunately, it can already be expected that the above data will be part of the “supportive base” for a possible new pension reform. At least, this is what happened previously, such as Constitutional Amendment No. 103/2019.

In this sense, in April 2019, when access was requested to the studies that would form the basis of the proposed reform, the Special Secretariat for Social Security and Labor stated that it had prepared them “within its legal powers”, but that “All files are categorized with restricted access because they are preparatory documents” [9] – Which did not prevent, on the other hand, from announcing that the reform would bring about “savings” of more than one trillion Brazilian riyals.

After pressure from parliamentarians, the federal government made the studies available, and they were embodied in the Technical Note SEI No. 6/2019/SPREV/SEPRT-ME. In describing the methodology presented in the document, there is a paragraph in particular that draws attention [10]:

Estimates of savings under the RGPS were obtained from the RGPS financial projections model. This model was jointly developed by a team from STN, SPE and Ipea, and is continually improved and used by the Social Security Secretariat/SPREV for the medium and long-term forecasts given in Annex IV.6 of PLDO for the year 2019. The model follows international standards such as the widely used models from The World Bank (Prost model – Pension Reform Options Simulation Toolkit) and the International Labor Organization (ILO Pension Model).

This methodology was the subject of a survey in which it was indicated that, in a biased manner, it would exaggerate expenditures and underestimate revenues, and lack minimum standards of reliability to be a means of assessing the need for reform of the social security system, since it should explain the mathematical development, the form of implementation carried out and the results obtained [11]. In this sense, the lack of a complete data set makes it mathematically impossible to estimate all probabilities, in addition to the fact that many of the variables provided as the basis for the calculations do not mention the sources from which they were drawn.

Despite the problems mentioned [12]It should be noted that the “methodology” and “mathematical modeling” that would have supported EC 103/2019 are the same used in all Budget Guidelines bills, at least since 2018. [13]. Including, once fixed in the 2024 PLDO [14]And, although still pending, the projection was another major topic of concern, in the sense that the “pension gap” would double by 2060. [15].

Given all the history of data creation so that Social Security has been and is being fixed according to government interests, it’s worth asking the question: What are governments’ priorities when it comes to Social Security? Based on the data presented, it is clear that The existence of a deficit or surplus, mainly actuarial, cannot be confirmed due to the lack of transparency in the method of calculation and the lack of a reliable and effective model for actuarial calculation – But the aforementioned disability letter insists on being present.

Fiscal assumptions have served as a pedestal, albeit inflated and unrealistic, to present an allegedly catastrophic scenario for social security accounts and, thus, to act in the social conviction that the system will not be sustainable and, therefore, that social security reform will serve as the only possible outcome. Reforms are important and necessary, but changes in the protection system to save resources are not encouraged, especially if there are no tangible means to indicate the real financial position of social security funds.

The reform has become a bitter medicine for social security protection in Brazil, at the same time that it is not known what disease will be combated and to what degree it will emerge. If what distinguishes medicine from poison is dose, then the corrective dose must be reprogrammed to focus on the true goal of social security: covering the population against social risks—under penalty of not supporting the patient for unfounded and excessive interventions.