Especially over the last decade, all of us have closely followed the discussions about what changes with the Social Security reform in Brazil . The objective of the initiative was to alleviate the cost of the social security system, which was already showing itself to be higher than the government’s collection capacity.
The anticipation of a change in legislation was accompanied by a feeling of apprehension for many people. This is because the context was uncertain, making it difficult to assess the real impacts of the new determinations.
As we know, however, the Social Security reform was enacted by Congress in November 2019 and is already in effect. With the new rules already defined, it is possible to find out how much time is left until retirement and even what the benefit amount will be. Do you already know how this calculation is done?
In this content, you will see details about what has changed with the pension reform and what to do to ensure a more peaceful financial future. Check out, below, a summary of the main news and continue reading to better understand the subject!
Contents [ hide ]
- 1Social Security: what is it?
- 2Social Security: what is it like in other countries?
- 1Pensions in Chile
- 2Pensions in the United States
- 3Was Social Security reform necessary?
- 4Pension Reform: what has changed?
- 1Retirement by age
- 2Benefit Calculation
- 3Public servants
- 4Special cases
- 4.2Police officers and prison officers
- 4.4Rural workers
- 5Did the amount of the pension decrease with the Social Security Reform?
- 6How were the rates after the Social Security Reform?
- 7When did the reform changes take effect?
- 8How do transition rules work?
- 1Points System
- 2Retirement by age
- 3Contribution time
- 4Minimum age and contribution time
- 550% toll
- 6100% toll
- 7Points system for civil servants
- 9What can you do today to ensure a peaceful retirement?
Social Security: what is it?
The word foresight has to do with prevention and security. In the context of retirement, it means saving money for the future . However, most people fail to do this—whether due to lack of planning or insufficient resources.
According to a survey by SPC Brasil and the National Confederation of Store Leaders (CNDL), 60% of Brazilians do not have a financial retirement plan . Of this amount, 36% have difficulties even to control expenses and pay recurring bills.
On a large scale, this scenario would generate a huge contingent of destitute elderly people and could lead to a series of other social problems. Thus, Social Security is a program that aims to prevent people from reaching old age without any income .
In addition to this purpose, the institution also protects policyholders in situations that could otherwise compromise their income and the livelihood of their dependents. For example:
- maternity leave;
Social Security is accessible to all Brazilians who work in a formalized manner . Through a monthly contribution, it is possible to be guaranteed a permanent income in the future and the help needed in unusual circumstances.
Social Security: how is it in other countries?
Two countries are always mentioned when we talk about pension models: Chile and the United States. Shall we understand a little better how the system works in these nations?
Pension in Chile
Chile reformed its pension model in the 1980s. Until then, the rules were similar to those that Brazil has today. The workers collaborated with a public fund that served to pay retirement, pension and benefits to those who already enjoyed the benefits.
With the change approved at the time, the so-called capitalization regime was instituted . Thus, each worker’s contribution goes to an individual account rather than to the collective fund.
This savings is managed by private companies, which invest the resources in the financial market in order to make them pay off. Today, in order to retire, Chilean workers have to contribute at least 10% of their salary for 20 years .
The State and employers do not make any kind of contribution. The minimum age to apply for retirement is 60 for women and 65 for men .
Therefore, the person is only entitled to receive the amount he has contributed throughout his life. Therefore, to earn more money, it is necessary to make higher contributions in the accumulation phase.
Pensions in the United States
The United States has a public model ( Social Security ) and a private model (401k).
The Social Security is similar to Brazil, with current workers finance the payment of retirees. In fact, it also faces growing deficit problems.
In the private pension model, companies and workers contribute together to form a financial reserve . This money does not go to the US Internal Revenue Service, but to funds known as the 401k .
They are investment funds similar to Brazilian ones. One of the most common models is one where the portfolio starts with a riskier profile, which can provide higher returns. As retirement gets closer, it becomes more conservative.
The resources are managed by a specialized manager, who, in general, takes care of the portfolio of employees of a certain company.
The Chilean and US systems have their advantages and disadvantages. But there is something in common: the worker himself is responsible for collecting money for his retirement .
This leaves people who don’t take care of their personal finances with no money to pay for their future living expenses. In the worst cases, there are those excluded from the pension system living in poverty.
That is why discussions about any form of Social Security reform were complex and generated controversy.
After all, how to serve the population in the best way possible, without leaving people destitute? In the short term, there is no way of knowing whether the measures taken by the reform will address all these issues.
Was Social Security reform necessary?
Social Security has a growing deficit, that is, it spends more than it collects . Without restructuring, to guarantee the payment of benefits, it would be necessary to take resources from other systems, such as education, health and infrastructure.
Another point is that, with the aging of the population, fewer people contribute and more start to receive the benefit . The result of this is that the hole would not stop growing until a corrective measure was applied.
Here, it is worth noting that population aging is linked to two factors. The first is the increase in Brazilian life expectancy , which today is between 70 and 80 years. This average, higher than those recorded when the previous legislation was developed, contributed to the imbalance.
The second factor is the drop in the birth rate— women are having fewer children and getting pregnant later. As a result, the proportion between elderly and young people in the country is altered.
In this scenario, there would be fewer and fewer contributors and more beneficiaries. These would receive the benefit for a longer time, considering the increase in life expectancy.
The truth is that Social Security reform was not a single movement. It was a set of proposals to try to make the Social Security account close. Therefore, different interests and political orientations permeated the discussions, requiring several adjustments until the text was approved.
Pension Reform: what has changed?
In 2019, Social Security consumed around R$ 767.8 billion . This estimate is the same as that contained in the budget proposal sent to Congress in the previous year. This number was three times greater than the sum of disbursements for education, health and public safety.
To complete, that year, the hole in the accounts of the social security system surpassed the mark of R$ 300 billion. This is the difference between what the government collects as a contribution to Social Security and what it has to pay in retirement and pensions.
The main objective of the reform is precisely to reduce this deficit. Under the new rules, then, the government estimated pension spending for 2020 at R$677 billion . The value represents a reduction of almost 12% compared to the previous year .
Approved in the second round by the Senate on October 22, 2019, it changes several points and affects all active workers . See now the main changes that are already in place.
Retirement by age
The main change for those who retire through the INSS is the increase in the minimum age. It becomes 65 years old for men and 62 years old for women.
Before the reform, there was no minimum age in the private sector. The public sector, however, provided 60 years for men and 55 years for women.
In addition, the reform no longer allows workers to retire for contribution time only. However, to retire, you will need to have contributed to the INSS for at least 15 years .
Also, men who start to contribute to Social Security after the new law must collaborate for at least 20 years.
The benefit calculation has also changed. It is now done based on the average of the worker’s overall contribution history . Before, an average of 80% of the highest receipts was made, also taking into account the readjustments of the minimum wage.
Those who contribute for 20 years will be entitled to retire, receiving the equivalent of 60% of the calculated benefit. The value increases by two percentage points every two years that the worker remains active.
Thus, to reach the full calculated value, men will have to contribute for 40 years, and women, for 35 years , at least.
The minimum retirement age for public servants is now the same as for workers in the private sector (62 years for women and 65 for men). You will also need to have a minimum of 25 years of contribution , 10 years of public service and 5 years in office.
Initially, the government included employees from the three instances in the reform — federal, state and municipal. However, state and municipal governments had until July 2020 to institute their own rules. Otherwise, the federal rules would apply.
In addition, public servants, who previously had a different income tax rate , started to follow the same table as the private sector . Thus, whoever earns more also contributes a higher percentage.
The Social Security reform still provides for some particularities in special categories. Check out what they are below.
The minimum retirement age for teachers is now 60 for men and 57 for women . Another requirement is to have at least 25 years of working time when applying. Before the reform, the minimum age was 55 and 50, respectively.
Police and prison officers
From 53 for men and 52 for women, the minimum age for police officers and prison guards is now 55 for everyone . There is also a requirement for at least 25 years of career and 30 years of contribution to the INSS.
The approved text of the Social Security reform, at first, did not include the benefits paid to the military. Only a few weeks after the new rules for that category were sanctioned.
The reform provides for a comprehensive restructuring of the military career. Among other things, salary readjustments, creation and expansion of bonuses and extension of an additional 10% to generals in the reserve are foreseen .
Rural workers are entitled to retire both by age and contribution time.
In the case of old-age pensions, men must be at least 60 years old and women 55 years old . Furthermore, in both cases there is a grace period of 180 months.
There is also the situation of the special insured , who are those who carry out rural activities individually or in a family economy regime. Usually, they have no employment relationship.
To be considered a special insured, the work performed by the person is more focused on their own livelihood and the development of the family .
This group, in general, does not contribute to the INSS nor does it have the necessary documentation to prove its activities. These workers receive a pension equivalent to one minimum wage, provided they prove 180 months of grace period.
Finally, there is also the so-called hybrid retirement , which was created in 2008 to include those workers who move from the countryside to the city. The change allowed the time spent working in the countryside to be added to that of urban work in calculating retirement.
In this scenario, men must be at least 65 years old and women 60. The 180-month grace period is also maintained.
Now, in the case of retirement by contribution time, men need to have 35 years of contribution and women, 30. Once again, there is a requirement of 180 months of grace period.
It is worth noting that contribution time and grace period are different concepts . The difference is precisely in the way in which time is calculated.
For example, imagine a worker who worked from the 25th of June 2020 until the 5th of July 2020. The contribution time was 10 days. But for the grace period, 2 months are considered.
These requirements above did not change with the Social Security reform. The way in which the pension amount is calculated has changed. Before, it was considered the average of the 80% highest salaries since July 1994 to then apply the reduction in rural retirement. This was due to age and contribution time.
As of the Social Security reform, the average of 100% salaries since 07/1994 is considered . The average of all their salaries will be calculated and then the reducer will be applied, which we explain further below. For special policyholders, who receive a minimum retirement wage, this calculation is not performed.
In rural retirement by age, the average of the 80% highest contributions since July 1994 will be made . That is, if the worker fulfilled the retirement requirements until 11/12/2019.
Otherwise, the average of 100% contribution salaries since July 1994 will be valid if the worker started to contribute from 11/13/2019. It also applies if he started before that date, but did not meet the necessary requirements to retire. Of this average, the taxpayer will receive 70% + 1% per year of what he contributed to the INSS .
With the reform, the calculation now includes only the average of 100% contribution salaries (compared to the previous 80%). However, the reduction of 70% + 1% per year of contribution remains the same.
Now, whoever chose the contribution time retirement modality must have 35 years of contribution time (men) or 30 years (women). Both with 180 months of grace period.
Did the amount of the pension decrease with the Social Security Reform?
In general, yes, it has reduced. The Social Security reform determines that the calculation for the benefit amount must consider the average of all salaries received since July 1994 .
Before, the average of the 80% largest contributions made from that date was made. Thus, the lowest salaries started to be considered in the calculation, which, in the limit, reduces the benefit.
In addition, a coefficient of 60% on the average benefit salary was implemented , plus 2% for each year that exceeds 20 years of contribution for men and 15 years for women .
This means that, to receive the full benefit, men must contribute for 40 years and women, for 35 years. Those who retire with less contribution time will receive a lower benefit.
How were the rates after the Social Security Reform?
The Social Security reform established new progressive rates, that is, whoever earns more pays more. For employees from the private sector, there will be four rates, according to income .
Those who earn up to the minimum wage contribute 7.5%. Those who receive from R$ 1,045 to R$ 2,089.60 pay 9%. The next range goes from R$ 2,089.60 to R$ 3,134.40, with a 12% rate. Above this amount and up to R$ 6,101.06, which is the INSS ceiling, it rises to 14%.
For federal employees, the maximum rate is 11% on the entire salary. For civil servants who remain linked to the Social Security System (RPPS), there are new rates also levied on salary ranges above the ceiling of the general regime. They can reach up to 22% and are calculated on each salary bracket.
When did the reform changes take effect?
The Social Security reform was approved by the National Congress on November 12, 2019. However, it was only after publication in the Federal Official Gazette, on the following day (13), that the rules came into effect .
It is worth noting that most of the changes took effect immediately. Some, however, had a shortage. We can mention the change in the social security contribution rate , which became effective on March 1, 2020.
How do transition rules work?
Even already in force, the new Social Security rules impact people in different ways. The truth is that the effects vary depending on how long each person has contributed and how long until retirement in the old model .
So that these people were not harmed, the transition rules for the Social Security reform were drawn up . Thus, those who were already close to acquiring the benefit, after many years of contributions, would not be harmed by the new model.
Understand now how each works and find out which one you fit into.
It is similar to the previous rule, in which the worker adds his age to the contribution time. Before applying for retirement, this amount had to be 86 for women and 96 for men.
With the reform, when adopting the points system, the taxpayer must have at least 30 years (women) or 35 years (men) of contribution . From 2020, each year, the required ratio will increase by 1 point, until reaching 100 points for women and 105 points for men .
The benefit amount is now calculated based on the average contribution salaries as of July 1994. A percentage of 60% is attributed plus 2 points for each year that exceeds 20 years of contribution, if a man, and 15 years old, if a woman.
This is intended to not harm those who started working early as those who already have the necessary contribution time to retire.
Retirement by age
This rule is intended for taxpayers who are of advanced age but do not have that much time to contribute. It determines that the worker with a minimum of 15 years of contribution can retire .
For this, he will need to reach a minimum age, which was fixed at 60 years for women and 65 for men, at first. That’s because it’s predicted that this minimum age will increase by 6 months each year, equaling the general reform rules in 2023.
In the case of men, the minimum contribution time will also increase by 6 months per year. The goal is to reach 20 years, which will only happen in 2029.
Previously, women aged 30 and men with 35 years of contribution could retire from the age of 56 and 61, respectively. The idea, in this transitional rule, is to increase the minimum age each year , until it equals the general measures of the reform.
This will happen in 2031 for women, when the minimum age will be 62 years old . For men, in 2027, this age limit will already be 65 years old .
Minimum age and contribution time
This transitional rule is intended for male taxpayers aged 61 and 35 years old. Also for women aged 56 and 30 years of contribution.
It established an age progression that determines the increase of 6 months in the minimum age each year, starting in 2020. Thus, from 2031, women will reach 62 years and men, 65 years in 2027 .
As a result, as of 2031, this transition rule will no longer exist. The general rule for retirement will apply: 65 years for men and 62 years for women.
Those who were very close to reaching the minimum contribution time to retire under the old rules can opt for this transition model. For this, it will be necessary to fulfill the remaining working time and half of it .
In other words, if the worker would contribute for another year when the Social Security reform was approved, he will have to do so for a year and a half. Thus, the benefit will be granted in full after this toll period.
For those who fulfilled the requirements of retirement by age and only needed to complete the contribution period, this rule may be the best alternative.
In it, the worker will have to pay a 100% toll on the time remaining for the minimum contribution period . Here’s an example: if a 60-year-old man had 28 contribution, he will need to work for another 4 years.
Points system for civil servants
It is an exclusive rule for those who joined the public service until December 31, 2003 and intend to retire with their last active salary.
It works similarly to the points system for private sector workers. The sum of age plus working time starts at 86 for women and 96 for men, increasing by one point each year.
The difference is that, for these professionals, the minimum age required for the benefit is 56 years for women and 61 for men. The minimum contribution time is 30 and 35 years , respectively.
What can you do today to ensure a peaceful retirement?
Have you thought about not depending on Social Security in the future? There is a way to start doing this today. The first step is to pay more attention to your finances and start to organize yourself financially .
Know that when you take care of your money, in order to set aside some amount for the future, you are already on the path to financial independence .
Then, as you get used to balancing accounts, you’ll be freer to make decisions about your life and career. Among them, the important definition of when you are going to retire .
The possibilities that the financial market offers can be great allies in this objective. There are options such as private pension plans , Tesouro Direto and investment funds . All have the potential to help build your wealth safely and profitably.