Without Reform, Brazilian State Pension Fund Deficits Will Rapidly Grow, Says Study

By Contributing Reporter

RIO DE JANEIRO, BRAZIL – The financial situation of Brazilian states’ pension fund programs has worsened since 2009 and, if the same pace is maintained, the number of pensioned employees should exceed that of active employees within a few years, until stabilizing at 152 percent of the number of those active in the 2060s.

The finding results from the study “The Situation of State Pension Funds,” published on Monday, 3rd, by the Independent Tax Institute (IFI), linked to the Federal Senate. The report gathers data from several other studies to analyze the state of Social Welfare in the 27 federative units from 2006 to 2017.

Data take into account the replacement of all retired employees, thus keeping the number of employees constant.

“As a result, in 2060, the social security deficit would be four times greater in real terms than in 2013,” explains the report. “This deficit would increase by 3.8 percent annually, on average, in real terms by 2050 or 5.3 percent and 4.3 percent by 2030 and 2040, respectively.”

Currently, five states (Rio Grande do Sul, Minas Gerais, Rio de Janeiro, Santa Catarina, and Espírito Santo) spend more on pensioners than they receive from those working.

The numbers of the IFI study show that the states’ social security deficit grew significantly from 2009 to 2015, from R$47.92 (US$12 billion) in 2008 to R$77.39 (US$19) billion in 2015, a 50.7 percent increase in figures adjusted to 2017 prices. This increase was primarily due to two factors: more retirements and higher benefits.

Between 2009 and 2015, the decline occurred in all states, except Amapá, Rondônia, Roraima, and Tocantins, as there is still not much pressure from pensions in these states’ relatively new budgets.

The study shows that, in 2017, 23 of the 27 federative units showed negative social security results, occurring when social security expenditure is higher than revenue.

Directly related to the increase in the social security deficit is the expenditure with personnel in the states, which is putting pressure on their treasuries and forcing them not to hire replacements to fill the vacant positions of retired employees.

Vilma Pinto, a researcher with the Brazilian Institute of Economics (IBRE), of the Getulio Vargas Foundation (FGV), conducted a survey of personnel and social security expenses as a proportion of the states’ total expenditure.

The figures show that in 17 states, personnel spending represented more than 60 percent of total spending in 2017.

“This compromises the functioning of the state as a whole. When it spends 60 percent, 70 percent is needed to pay salaries, and there is very little left to pay for everything else, such as safety and assistance. When it comes to states, what counts most is education and safety,” Vilma said.