SUNS  4319 Monday 7 November 1998

Rio de Janeiro, Nov 5 (IPS/Mario Osava) -- A partial overhaul of Brazil's pensions system, finally approved by Congress under the pressure of the financial crisis, is considered an important first step in the fiscal adjustment considered indispensable for restoring investor confidence in Brazil.

It took three and a half years and three waves of international financial turmoil for the constitutional amendment to make it through Congress. Late Wednesday night, the Chamber of Deputies approved the last three clauses of a draft reform project submitted by the executive branch.

The new legislation stipulates that men can retire after 35 years of paying into the public social security system, and women after 30 years. Up to now, Brazilians have retired (and got pensions) according to the number of years worked, regardless of whether or not they contributed to the system.

The government's aim was to put an end to early retirement and reduce the system's bulky deficit. Over the past few years, the average age of retirement has stood at 49, while many women public school teachers, for example, retire before the age of 40.

Former social security minister Reynhold Stephanes admitted that he retired at the age of 48.

Since an overhaul of the pensions system depended on a reform of the constitution, congressional approval was especially difficult, given the need for a 60% majority in at least two votes in the Chamber of Deputies and two in the Senate for constitutional amendments. A fifth vote in the lower house of Congress was needed this time around to confirm major modifications added in the Senate.

But Jose Ceccin, executive secretary of the ministry of social security, described the reform as "too little, too late" to re-establish balance in the system. He pointed out that several clauses of the original draft submitted by the executive branch had failed to obtain approval.

The government will continue to insist on an increase in the minimum age for retirement, one of the clauses that was voted down, said Ceccin. While the initial draft prohibited retirement before the age of 60 for men and 55 for women, Congress set the ages at 53 and 48, respectively.

Nevertheless, the reform will mean savings of $1.4 billion next year, and up to four times that amount within three years, the official added.

The reform of the pensions system was part of the fiscal adjustment programme announced by the government last week, aimed at reducing the public accounts deficit by $23 billion next year, and promoting a similar effort in the two following years.

The package of fiscal measures was the main condition for Brazil to receive more than $30 billion in financial assistance from the IMF, the US, and multilateral development banks. The agreement is to be signed next week.

The constitutional amendment mainly refers to retirement by private sector workers, whose system will post a $6.5 billion deficit this year.

But balance between contributions and payments will only be achieved within seven or eight years, said Ceccin.

The greatest factor of imbalance in public accounts, however, are public sector pensions, which Finance Minister Pedro Malan said would cost the state around $28.6 billion this year.

The pensions of Brazil's public employees are in line with their salaries, while private sector workers suffer a sharp drop in income upon retirement, and draw a maximum of 1,200 reals ($1,000) a month.

Another clause rejected by Congress would have reduced public sector pensions by 30 percent.

Economic authorities thus decided on an alternative measure to reduce the pensions: 11% of the pensions drawn by retired civil servants will be docked and channelled back into the social security system. Furthermore, the social security tax paid by civil servants earning more than 1,200 reals a month was raised from 11 to 20 percent of their salaries.