The Brazilian Pension System

Country Profile

The world’s seventh wealthiest economy and the largest country in area and population in Latin America, Brazil is a top exporter of farm products and manufactured goods.

In the future, the discovery of major offshore oil reserves could propel the country into the top league of oil-exporting nations. Brazil’s natural resources, particularly iron ore, are highly prized by major manufacturing nations, including China.

Governed by president Dilma Rousseff, who is in her second term, the Portuguese-speaking federative republic has benefitted from stable economic growth and relatively low inflation rates, even though most of the country’s indicators seem to have worsened in the past few months.

Brazil experiences great regional differences, and the richer South and Southeast regions enjoy much better indicators than the poorer North and Northeast. Still, poverty has fallen markedly.

Brazil has managed to pull some 35 million people out of poverty since the mid-1990s. Besides economic improvements, key drivers of this have been well-focused social programs and a policy of real increases for the minimum wage.

Environmentally speaking, there has been some progress in decreasing the deforestation of the rain forest and other sensitive biomes, but the country still faces important development challenges in combining the benefits of agricultural growth, environmental protection and sustainable development.


Analysts have lowered their estimate for economic growth in 2015 and raised their inflation prediction as the government negotiates with Congress over fiscal moves to trim the budget deficit.

Economists forecast inflation will accelerate to 8.25 percent this year, while tax increases and spending cuts are stalling growth (a recent survey by the country’s Central Bank estimates that the GDP should be -1.35% in 2015, the worst result in 25 years).

However, the economy is expected to recover next year as confidence improves. GDP will rise 0.9 percent in 2016 as inflation slows to 5.6 percent, according to Bloomberg. The Central Bank targets inflation at 4.5 percent, plus or minus two percentage points.

Policy makers have boosted the benchmark annual interest rate to combat inflation, to 13.75 percent. The key rate will end this year at 13.25 percent, falling to 11.50 percent in 2016, according to surveys.

Area8,514,877 sq. km
Population204,398,798 (June 2015 est.)
Birth rate15 births/1000 population (est. 2015)

Brazilian Real (BRL)
1 BRL = US$ 3.08/€3.47 (06/16)

Life expectancy (at birth)75.44 years (population) - 71.88 (male), 79.05 (female)
Population growth rate0.8% (2014 est.)
Labor force107.1 million
Unemployment5.3% (January - 2015)
GDP  (PPP)$2.4 trillion
GDP real growth0.1% (2014)
Per capitaR$24,065,00
Inflation (CPI)7.14% (last 12 months)
FDI InflowUS$5,777 billion (April 2015)

Population Growth

Brazil’s population has been growing very rapidly, from 190.7 million in 2010 to 200.6 million in 2013. Projections indicate that it will continue to rise longer than previous estimations as the country’s middle class expands and lives longer. Brazil’s population will peak at 228.4 million by 2042 and finally stabilize around 218 million by 2060.

0-14 years23,19%
15-64 years69,92%
65 years and over7,90%
Source: IBGE (2015) 


Total dependency ratio45,1%
Youth dependency ratio33,6%
Elderly dependency ratio11,4%
Source: IBGE (2015) 

The country’s growth has in many ways hampered by the large number of Brazilian women entering the workforce and choosing to wait longer to have children. The birth rate has dropped a great deal since the 1970’s, when women had an average of 4 children or more. Today, the birth rate is 1.72 births per woman, which is lower than the U.S. rate. It’s estimated this rate will fall to 1.5 by 2034 and remain at that level through 2060.

Life expectancy has also grown in Brazil to 71.8 years for men and 79.0 years for women. It’s estimated that both men and women will live longer than 80 years on average by 2041, which means Brazil will also be dealing with an aging population before long, with greater demands on pensions and health care.



The Brazilian Pension System

The Brazilian pension system is structured in three pillars:

  • A public, mandatory, pay-as-you-go (PAYG) system known as General Social Security Regime (RGPS);
  • The Pension Regimes for Government Workers (RPPS);
  • The Private Pension Regime (RPC) - Occupational and Individual plans.

Since the late 1990s, Brazil’s three-pillar pension model that has been subject to a series of ongoing reforms. The need for such reforms stemmed primarily from unbalances that placed heavy pressure on the governmental budget.

The pension schemes for civil servants and private sector workers were amended in two rounds. Amongst other reforms, benefits were reduced and limited to a monthly ceiling and vesting periods were implemented, which has curbed some of the excesses of the system. Despite these reforms, the government only partly succeeded in ensuring long-term financial stability of the system, which forced Brazil to enact further changes.

Brazil is a young country with a Social Security bill of an old one. Its expenses on pensions range at 9% of the Gross Domestic Product (GDP), possibly reaching 16.8% in 2050 according to a study by the Inter-American Development Bank. This is due to the country’s quick aging process and high replacement rates provided by the public system (approximately 75% of average income) which, combined with early retirement options, tends to be unsustainable in the long run.

In contrast with other Latin American countries, Brazil has not replaced the basic public PAYG system by a mandatory private pension scheme, but pursued reforms oriented to strengthen the redistributive role of the first pillar and to gradually develop the complementary private pension system, offering an alternative for medium and high income workers to preserve their life’s standard after retirement.


First Pillar

General Social Security Regime
(Regime Geral de Previdência Social - RGPS

Managed by the National Social Security Institute (INSS), the Social Security General Regime is a public, mandatory pay-as-you-go (PAYG) scheme that pays Defined Benefit pensions for private sector workers as well as self-employed professionals and elected civil servants.

The monthly benefit ceiling for RGPS benefit calculations is R$ 4,663.75 (US$1,513 per month) and the replacement ratio is relatively high for individuals earning less than the salary ceiling. It is financed through payroll taxes (shared by the employer and the employee - 11% of the pensionable salary), revenues from sales taxes and federal transfers that cover the shortfalls of the system.

Private-sector employees are entitled to retire with a full pension at age 65 for men and 60 for women living in urban areas if they have a contribution record of at least 15 years. However, the retirement age is considerably lower, with men able to draw down their full pension after 35 years of contributions, and women after 30 years, irrespective of age. It means that men can receive a full benefit as early as 55, and women at 50. Proportional benefits are also available for those who choose to retire early.

So far, survivors’ benefits have no age limits, although the Parliament has been discussing changes that limit spouses’ access to the insured person’s pension in the event of death.

In addition to several pension modalities, the Brazilian General Regime provides a broad spectrum of coverage, which includes several benefits such as paid maternity leave benefits, sickness benefits, unemployment insurance and disability pension, among others.
A key element of the RGPS is the strong redistribution towards the poor elderly. The pension system is based on the concept of solidarity, meaning that those who are now employed support those who have reached retirement age. Different programmes are non-contributory and provide means-tested pensions amounting to the minimum wage, which are achieved by exemptions from contributions and reduced contribution rates for low-wage earners and certain sectors.

Rural workers aged over 60 and poor citizens over 65, for instance, are eligible for a monthly pension of R$ 788 or approximately US$ 255.8 - the Brazilian minimum wage - without having contributed to the system. But the welfare system costs around 2% of GDP annually. Most of the spending is a result of early retirement and high benefits.

The health system, in turn, is also public, free and of universal access, although somewhat inefficient. For this reason, all of those who can afford opt to pay for additional private health insurance.


Second Pillar

Pension Regimes for Government Workers
(Regimes Próprios de Previdência Social - RPPS)

Public-sector employees are under specific pension provisions. Although the eligibility criteria are the same for all government workers, there are over 2400 specific pension regimes managed by the Federal government, States and Municipalities with specific financing rules (which are jointly coordinated by the Ministry of Social Security). In general, these pension plans are financed on a pay-as-you-go basis with the employee paying a percentage of their salary. The percentage varies depending on the public entity.

In 2003, the government promoted a comprehensive adjustment in the PAYG parameters (age limit, replacement rates, retiree’s contribution) for current workers and the convergence of rules for private and public sectors that have come into force for the future generations of civil servants. Now, 10 years of work within the government are required to qualify for a pension, whereas there was no vesting period before. The pension benefit formula was also changed from a final salary scheme to one that takes into account the best salaries from positions the member held for at least five years.

To be entitled to a full public-sector pension benefit, the statutory retirement age is 60 for men and 55 for women (members who joined the system from 2003 on). Those who were already employed in the public sector are subject to more lenient eligibility requirements with men entitled to the pension at the age of 53 and women at the age of 48.

Compared to the private-sector scheme benefits, public-sector employees receive higher pensions in exchange of lower contribution rates. The national armed forces and similar groups at state level also have differentiated, career-basis scheme that is mostly financed by general budget.


In 2012, the Brazilian Government took an important step towards the sustainability of the system: the establishment of the Complementary Fund for Civil Workers – Funpresp. The measure aims at regulating the pension reform approved in 2003, which sought to bring together the pension schemes of the public and private sectors. 
According to specialists, Funpresp it is the first step towards ‘fixing’ the Brazilian Social Security Regime, considered by many as one of the most generous on the planet. “We absolutely have the most generous system in the world. The economy of Brazil is very different from Greece’s but in terms of retirement rules, we are worse”, says Fabio Giambiagi, an economist at the Brazilian National Development Bank.
The new law required the government to set up the Complementary Pension Foundation for Federal Public Servants (Fundação de Previdência Complementar do Servidor Público Federal - Funpresp) with one fund for each branch of the government: executive, legislative and judicial.

Under the reform, new government employees are no longer entitled to a pension equal to their last salaries and are now subject to a benefit ceiling equal to the RGPS, or the General Social Security System, currently at R$ 4,663.75 (US$1,513 per month). In addition, they will have a complementary DC pension made up of voluntary contributions.

In order to receive a higher benefit, the employee has to contribute to Funpresp and choose what percentage of income to contribute each year. The employer (government agency) provides a matching contribution of up to 8.5 per cent of an employee's earnings. At retirement, a worker will receive an annuity based on the account balance in Funpresp. The new scheme will also tighten the rules on benefits to widowed spouses.

This new federal legislation paves the way for similar changes in the pension schemes run by state and local governments. All of these rules are cost savers for the public sector in the long term and some important Brazilian states have already set up their own complementary pension funds for public employees.

While the fiscal impact of Funpresp is very positive in the long run, there are transition costs making the initial impact negative on the government’s coffers. A study published in 2008 indicated that the budgetary impact from the establishment and implementation of the Funpresp is negative in the first twenty years or so. The net average cost adds to 0.1% of GDP per year, owing to (1) lower social security revenues, as new entrants‟ contributions (to the old system), (2) higher federal expenditures related to the government's contributions to the Funpresp (equaling the ones made by each civil servant).

However, from the third decade onwards, the government shall start to reap the benefits of the reform, with lower pension outlays outdoing transition costs as the amount of workers in the new regime starts to gain share in the total pool of public workers.

With about 40% of federal workers likely to become eligible for retirement in the latter part of the decade, the timing couldn’t be better for passing this project, specialists claim, as it could accelerate the transition towards this new system.

The new regulation will also pave the way for large (privately run) pension funds, seeking for long-term investment and bringing positive externalities for the local capital markets (and for the whole economy). In addition, more balanced social security costs (in terms of benefits for private and public sector workers) could favor income distribution.


Third Pillar

The Complementary Pension Regime
(Regime de Previdência Complementar – RPC)

Brazil has a young Private Pension System (third pillar) in which pension funds operate in a highly regulated environment and in accordance with the best practices available. Such environment has enabled Brazilian entities to keep a very good investment track.

Under the Private Pension Regime, both occupational and personal pensions are provided on a voluntary basis. There are two pension vehicles available to manage private benefits: closed pension funds (also known as Closed Entities) and insurance companies (Open Entities). The types of pension plans offered by the latter are not necessarily linked to employment, since open pension entities offer their services to employers, employees, the self-employed and even unemployed individuals. This approach to pension provision is mostly chosen by small and medium-sized employers. Compared to closed pension entities, this type of pension provision can have disadvantages in the form of less flexibility in making investment decisions, higher fees and less administrative control.

The regulatory environment for open and closed private pension entities is quite different. The National Superintendence of Complementary Pensions (Previc), linked to the Ministry of Social Security, supervises closed funds in regards to, amongst other areas, governance, disclosure, investments and fees. The National Board of Complementary Pensions (CNPC), in turn, makes the main regulatory decisions. The supervision of open private pension entities, on the other hand, is carried out by the Superintendence of Private Insurance (Susep), which is linked to the Ministry of Finance. The National Board of Private Insurance is in charge of setting the relevant regulations.

The role of Pension Funds

While most of the Latin American private pension industry has been developed after the Chilean pension reform in 1981, the first Brazilian regulations were issued in 1977. Since 2001, new Law and regulations have been issued so as to promote the dynamism of the market and incorporate international standards, best practices and innovation.

Brazilian closed private pension entities are non-profit organizations (foundations) that can be established on a single-employer or multi-employer basis and by labor unions and class associations. The accumulated assets are legally segregated from the sponsoring undertaking and submitted to specific accounting, financing and actuarial regulations. Historically, the industry has grown based on the employment ties in State owned, large multinational companies following the Bismarckian tradition, but soon private enterprises also began to offer benefit plans to its employees.

Since 2003, some innovations have been implemented so as to extend the coverage to other groups, including small and medium enterprises, labor unions, professional associations and civil servants. In that year, discretionary vesting promises were also replaced with a statutory vesting period of three years and the portability of assets between pension plans was improved.
In May 2015, there were 317 pension funds covering 7,187,869 people (active participants, retirees and beneficiaries). Closed entities accounted for 12.9% of GDP, with assets under management totaling approximately US$ 227 billion. Pension funds offer defined benefit plans, defined contribution plans or mixed arrangements, which are DC plans with some ingredients of defined benefit provision like the cash balance plans, floor benefit plans and target benefit plans. Most plans also offer risk benefits such as disability pension, death benefits and so on.

The funds sponsored by labor unions and professional associations, in turn, can only manage Defined Contribution plans. In occupational schemes, the accumulated funds in individual accounts are portable under certain conditions and withdrawals are allowed upon retirement and termination of employment or associative tie.


The National Regulatory Board for Complementary Pensions (Conselho Nacional de Previdência Complementar - CNPC) is in charge of regulating the industry. It is chaired by the Social Security Minister and composed of representatives from Previc, SPPC, the Office of the Presidency of the Republic, Planning, Finance and Budget Ministries, pension funds, sponsors (Abrapp), participants and beneficiaries. 

Established in 2009, the National Superintendence of Pension Funds (Previc) is the supervisory agency of Brazilian pension funds. Before that, such responsibility belonged to the National Secretariat of Pension Funds (SPC), which was subordinated to the Social Security Ministry. 

The new agency is semi-autonomous, administered by a board, and has its own budget financed mainly through levies paid by the pension funds based on the assets under management. Such levies are to be calculated on a sliding scale, based on the size of the actuarial reserves of each plan. 

Previc’s organizational structure also comprises an ombudsman and a corregedoria, a department in charge of policing compliance with internal processes, as well as the Complementary Pensions Chamber of Appeals (Câmara de Recursos da Previdência Complementar - CRPC). Such bodies are composed of representatives from pension fund entities, plan sponsors, plan participants and the government.  

The Board of Directors is made of a superintendent and four directors, all of which chosen amongst professionals of good reputation and recognized competencies, identified by the Minister of Social Security and approved by the President of the Republic. Directors are forbidden from participating in any professional or political activity that would conflict with their responsibilities.  

The Risk Based Supervision approach has yet to be fully implemented: the responses are heterogeneous and adjustments need to be made both on the supervisor and pension funds’ side. However, much has been done in the past years: more effective risk metrics, new management practices, governance improvements and a new form of relationship between pension entities and the supervisory body are some of the visible effects. All these aspects must still develop further, although the path to be followed has already been determined. 

The transition from an exclusively rule-based supervision to a more complex design of risk management requires a change in paradigm, and this transformation, specialists point out, demands learning. One of the main results of this change, easily identified in the Brazilian pension funds’ experience, it’s the alignment of entities’ governance practices, which came to reinforce the role of the governing and supervisory boards.

Tax treatment

In general, contributions to private pension plans are tax-deductible up to certain limits for both the employee and the employer. The legislation passed in 2001 focused on making complementary pensions more attractive, thus terminating the Special Taxation Regime as of 2005.

In contrast to the old legislation, the 20% withholding tax on pension fund investment returns was removed, which has generated higher net returns and lowered costs for Defined Benefit schemes. Pension benefits are taxed as ordinary income. The model allows for the adoption of a regressive regime, which limits taxation to 10% of the retirement income for participants who remain in the plan for at least ten years. 
Investment Regulation

In 2009, the Brazilian Monetary Council (Conselho Monetário Nacional - CMN) enacted Resolution 3.792, which set forth investment limits for pension fund investments, allowing them to invest more aggressively in several asset classes, yet keeping the criteria of transparency, control and supervision. The main asset classes and quantitative limits are as follows:

Asset class% of plan assets
Government bonds100%
Private debt and bonds issued by states and municipalities80%
Variable Income70%
Structured investments (including Private Equity and IE)20%
Foreign investments10%
Real estate8%
Loans to participants15%
Multi assets funds10%

Actuarial Discount Rate

The discount rate used by pension plans shall follow a Parameter Interest Rate (TJP), which reflects the actual market rates panorama, currently ranging from 3.21% to 5.27%

The discount rate is adjustable depending on the economic scenario and the duration of the plan’s liabilities. It should fluctuate within a range in which the minimum and maximum limits are related to the TJP, which, in turn, is calculated with basis on the average of three-year daily Interest Rate Term Structure of federal bonds linked to the Broad Consumer Price Index in their closest spot in relation to the duration of the plan’s liabilities.

The upper band of this interval shall be obtained by adding 40 basis points a year to the TJP, a percentage that will represent a “risk premium” to the pension entities that deem possible to achieve greater returns. The lower band will be equal to 70% of the TJP.

The variation within this interval shall not require previous authorization from the supervisory agency (Previc). This will only be necessary if the fund manager wishes to use an actuarial rate outside the aforementioned interval. In order to do so, one must present technical studies that corroborate the request.

Deficits and surpluses

In case of overfunding, the regulation mandates:

  1. The establishment of a Contingency Reserve (buffer) of 25% of present and future plan obligations so as to safeguard the payment of benefits in face of market fluctuations;
  2. The adoption of AT-2000 mortality table with a 10% smoothing - which is more conservative than the widely used AT-83 table;
  3. The application of a discount rate that is 1 percentage point inferior to the Parameter Interest Rate cap;
  4. The absence of debts within the pension plan;
  5. The fund’s asset allocation must abide by the quantitative limits set forth in the applicable regulation.

The values exceeding the Contingency Reserve will make up the Special Reserve (or buffer), which may be distributed through the freezing of contributions for plan members, beneficiaries and sponsoring company.

Only upon the observation of these requirements can the plan be reviewed and rebalanced, taking into consideration the proportion of contributions on the part of members, beneficiaries and sponsors.

The absolute majority of members of the fund’s governing body must approve such review, observing the following steps: reduction or freezing of contributions, benefit increases and surplus distribution to members, beneficiaries and sponsors (lump sum).
In case of surplus distribution for members and beneficiaries, the following conditions must be met:

  1. The plan must be closed to new members;
  2. The plan must solvent, that is, it must not require future contributions;
  3. A thorough internal auditing process must be carried out so as to assess the status of assets and liabilities, including judicial disputes;
  4. The distribution of surplus must be previously approved by the supervisory agency;
  5. It should be made in at least 36 monthly installments.

Pension funds are required to set up a recovery plan when the underfunding corresponds to less than 10% of the plan’s assets for three consecutive years. In case of deficits of more than 10%, the fund has to present a recovery plan to the supervisor in the year after the underfunding has been detected. The length of the recovery plan will depend on the duration of the plan’s liabilities. 

Deficits must be equally shared by plan members and sponsors. The procedures, in this case, involve contribution increases, reduction in the future value of benefits and additional contributions. 


Brazilian pension fund managers and authorities have long discussed the convergence of international and national accounting standards for the sake of comparability.  Amongst the international standards in place, the most relevant for Brazilian entities is the IAS 26, which comprises accounting and the quality of information made available for members and beneficiaries.

According to Complementary Law n. 109/2001, the accounting of Brazilian pension funds must be made in respect to each pension plan managed by the pension fund, with due segregation of guaranteeing resources and obligations between different schemes.​