Inactive military and pensioners could cost Brazil over US$138 billion

RIO DE JANEIRO, BRAZIL – The cost was calculated after the Federal Audit Court (TCU) last year opened the black box of data from the military social protection system.

The federal government would have to disburse R$703.8 (US$138) billion were it to today pay all future benefits of active and inactive military personnel of the Armed Forces and their pensioners.

The cost, called the actuarial deficit, was calculated for the first time by the Ministry of Economy, after the Federal Audit Court (TCU) last year opened the black box of data from the military social protection system.

Access to the data was the focus of a dispute that lasted three years. Under the allegation that reserve and retirement pensions did not represent a social security benefit, the Armed Forces refused to calculate the future fiscal cost of these payments. But the court of auditors demanded the estimate, given the significant amount involved.

In 2020, the TCU completed the estimates and forwarded them to the Federal Treasury, which released the figures. This year, the Ministry of Economy itself did the math, using a methodology and assumptions similar to those used to calculate the future cost of benefits for civil servants.

The data were released in the Federal Treasury Accounting Report on Thursday, June 10, and have as reference the position on December 31, 2020.

The actuarial deficit considers all contributions that will be collected in the future and the expenses that the government will have to pay for military officers’ benefits, comprising 369,400 active duty forces, 162,900 inactive and 199,900 pensioners, according to data from 2020 presented by the government in the submission of the Budget Guidelines Law (LDO) for 2022.

The shortfall exists because despite the increase of the contribution rate from 7.5% to 10.5% for active and inactive military officers and the extension of the collection to pensioners, the amounts collected are insufficient to cover the costs of future expenses. The difference becomes a potential extra cost, to be paid in the future, and therefore needs to be provisioned in the federal government’s balance.

In the last military reform, part of the armed forces was granted a series of bonuses and adjustments, in addition to a much smoother transition rule than civil servants or private enterprise workers who contribute to the INSS (Social Security Institute), with an additional 17% on the time remaining to reserve. For the others, this additional payment stood between 50% and 100% depending on the rule.

According to the Treasury report, the benefits to be paid to reserve or retired military personnel alone will cost R$405.8 billion, calculated at today’s prices. Of this amount, R$152.9 billion are from benefits to be granted (military personnel still active) and R$252.9 billion from remunerations already granted. The pensions granted or to be granted generated a provision of R$298 billion.

The overall value of the actuarial deficit is lower than the one initially calculated by the TCU, of R$729.3 billion, which had as reference the position in March 2020. According to the Federal Treasury, the estimates have undergone some improvements, such as the use of “biometric tables”: for the age of each current and future pension recipients, a probability of survival is assigned, that is, of continuing to receive the benefit.

Civilian system

The actuarial deficit of the military is lower, in absolute terms, than the cost of R$1,158 trillion the federal government would have to pay today for the future benefits of its civil public servants. However, the civil servants regime has a greater reach, with 1.45 million insured, with 663,500 active, 479,500 retired and 305,000 pensioners, according to 2020 data reported by the government in the 2022 Budget Guidelines Law proposal.

With respect to the INSS, the government is not yet including the value of the actuarial liability in the federal government’s balance because, according to international standards, this is not considered a government “debt”. Even so, the Treasury points out that the projected social security deficit (the difference between revenues and expenses in a single year) is 3.50% of Gross Domestic Product (GDP) and will reach 8.67% of GDP in 2060.

Despite the increase, the “finish line” is lower than before the pension reform, when the deficit could reach 11.64% of GDP. “The Social Security reform mitigated, but did not contain the growth of the projected social security deficit,” says the Treasury.

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