Pensions 2030

By Roberto Teixeira da Costa, Member of the Board, Sul America, Brazil

1) How will current pension fund schemes look in the year 2030 if nothing is done?

In the opinion of key local professionals, the current Brazilian social pay-as-you-go system projected to 2050 represents an actuarial deficit of approximately 1.93 of GDP. Whether or not the assumptions used for this actuarial exercise are conservative (3.5% average GDP growth and a real interest rate of 3% a.a.), the deficit represents a very serious problem that could undermine state finances if nothing is done during the years to come.

The fact that Brazil is growing economically, as is its formal economy with formal employment, should not be cause for delaying major pension reform. Pension reform represents a key factor in creating substantial investment resources for the government to maintain the achieved economic growth.

2) What is the best combination of individual accounts and pay-as-you-go components for an optimally performing pension scheme?

One of the key roles of any state is to help poor and disabled citizens. The pay-as-you-go pillar shall guarantee the minimum income for a dignified life to those who did not have the chance to contribute to the system and to those whose contributions were not sufficient to guarantee the minimum retirement pension level.

The complementary system of individual capital accounts is by definition the responsibility of each individual. The state only defines prudent rules to guarantee a secure and qualified environment for the growth of each individual citizen’s assets.

3) What important innovations can increase coverage and efficiency? What is the state's role in driving this process?

The reduction of the state in its social assistance and regulatory roles has a positive effect by increasing the overall operational efficiency and the positive creativity that only the private sector can generate.

The state’s role is to stimulate its citizens to look for solutions for their individual longevity risks and create relevant incentives to stimulate asset accumulation in the long term. The essential role of the state lies in its obligation to constantly control the existing environment to guarantee compliance with all valid rules.