The Brazilian government's proposed social security overhaul will rely on individual contributions to investment funds instead of guaranteed pensions, to ensure future generations receive pensions while also boosting economic growth, Presidential Chief-of-Staff Onyx Lorenzoni said Wednesday.
He said the government will include a "capitalization system" in a proposal to be sent to Congress in February. He said the plan would boost internal savings and spur economic growth by at least 3 percent a year.
Under the system, private pension funds fed by individual defined contributions would eventually replace the current public system based on a guaranteed package of retirement benefits.
Overhaul of the costly state pension system, or social security, is a top priority for Brazil's new President Jair Bolsonaro, who blames it for chronic budget deficits and a mounting public debt. Previous governments have tried to reform the pension system before, but have faced years of resistance from public servants, unions and other groups.
The government is determined to send a complete pension reform proposal to Congress rather than partial reforms, to ensure that the benefits last longer, Lorenzoni said.
"We will fix this sinking ship called the pension system which has a hole on its hull," he said in a radio interview.
The aim is to overhaul the pension system so it does not need to be reformed again for the next 20 or 30 years, he said.
Lorenzoni said no decisions have been made and new proposals will be presented to Bolsonaro next week.
However, business daily Valor Economico reported Wednesday that the individual private contribution system would be restricted to higher income workers, who are a small portion of the pension system. The story cited anonymous sources close to Bolsonaro's economic team.
Brazil is expected to follow the example of Chile's privatization of social security introduced in the 1980s under dictator Augusto Pinochet that boosted savings and added liquidity to the stock market.
The highly privatized Chilean pension system has been widely imitated around the world.
Pensions in Chile are currently managed by six powerful private fund administrators, known as AFPs, holding nearly $200 billion in assets. These pensions have often fallen short of expectations, prompting angry protests in recent years by Chileans saying they have been short-changed.