OLDER PERSONS AND SOCIAL SECURITY*

Transcription

1 CHAPTER 12 OLDER PERSONS AND SOCIAL SECURITY* Francisco Eduardo Barreto de Oliveira In memoriam Kaizô Iwakami Beltrão Instituto Brasileiro de Geografia e Estatística (IBGE)/Escola Nacional de Ciências Estatísticas (ENCE) Sonoe Sugahara Pinheiro Instituto de Pesquisa Econômica Aplicada (IPEA) Fernanda Paes Leme Peyneau Instituto de Pesquisa Econômica Aplicada (IPEA) João Luís Oliveira Mendonça Instituto de Pesquisa Econômica Aplicada (IPEA) 1 INTRODUCTION The present work consists of an update of a homonymous article published in the first edition of this book. We have opted for an update of the article for two main reasons: to demonstrate that many of the dysfunctions pointed out and proved statistically at the end of 1999 endure, despite the two reforms that the Brazilian social security system underwent in the last six years, and to see whether, and to what extent, some of the problems in the system were minimized with the 1998 reform. The rereading of the article was, unfortunately, an opportunity to verify that the changes implemented over the last years were insufficient to resolve the Brazilian social security system that continues to present financial difficulties and still needs a structural reformulation up to par with the new demographic, social and economic reality of the country. Social security should be seen as a set of policies and actions articulated with the aim of sustaining the individual and/or familial group faced with events resulting from death, illness, disability, unemployment and economic incapacity * This chapter was transladed from Portuguese to English by Barbara Melo and reviewed by Kaizô Beltrão. Arq_20_Cap_12.pmd 395 6/10/2006, 12:37

2 396 FRANCISCO EDUARDO BARRETO DE OLIVEIRA KAIZÔ IWAKAMI BELTRÃO SONOE SUGAHARA PINHEIRO FERNANDA PAES LEME PEYNEAU JOÃO LUÍS OLIVEIRA MENDONÇA in general. As could not be otherwise, the generic nature of the definition covers a number of variants in the practical sense, depending on political, economic, social, historical and cultural factors that influenced the evolution of each and every system. Social security, as consecrated in the Brazilian Federal Constitution, has three components: social insurance, social assistance and health. In this text we will focus mainly on the first of these components, always aware, however, that in the collective imaginary the first two are interchangeable. This is due to the fact that one institution alone has always performed the payment of the two components. The non-separation of the two concepts is also reflected in the data collected from the population. Social insurance is made up of a program of payments in money and/or services rendered to the individual and/or dependents, generally conditioned by a pre-existing contributory link to the system, as partial or total compensation for the loss of working capacity. Such loss can be effective or presumed. Under the current social insurance system, advanced age is one such situation where loss is presumed. Obviously the definition of the age in which loss is presumed is the result of a social agreement, as an actual age does not exist, biologically speaking. The state of health varies enormously as regards cultures, social classes and occupations, through time, and also as regards individuals (see Chapter 1 of this book). Thus, advanced age, aside from a biological status and as part of the life cycle, is a social construct. Though not compulsory, all cultures define (or defined) age groups according to those acknowledged in Western cultures and these definitions, by no means obligatory, are consistent in their various functions. For example, women have, in various cultures, a minimum age for retirement-by-age inferior to those required of men, even though they present lower mortality and lower morbidity in these age brackets. We can consider this differentiation as a product of a male-dominated society, in which the weaker sex deserves milder conditions. 1 The (true) allegation regarding the cost of opportunity versus reproductive functions and regarding familial responsibilities is rarely used. Historically, considering a cut through all social strata, the idea that advanced age should imply in the absence of working activity is quite recent. Social security in its modern version, guaranteed by the State, was one of the sine qua non conditions for the implementation of such a concept. It is obvious that other forms of support for later years have always existed, such as family and social charity, but the scope was quite restricted and did not exclude the collaboration of 1. Though the usual discourse on this subject may include allegation regarding female reponsibility with housework in addition to her regular professional occupation, familial responsibilities, compensation for job and salary discrimination, etc. Arq_20_Cap_12.pmd 396 6/10/2006, 12:37

3 OLDER PERSONS AND SOCIAL SECURITY 397 older persons in various domestic and/or communitarian tasks. In contrast, the existence of social security presumes a reasonable level of wealth in society so that individuals, productive or not, may enjoy a regular income. Another situation that can theoretically lead to loss in working capacity and, consequently, to eligibility in obtaining a social security benefit is that of arduous work or work under harsh conditions over a long period of time. A typical example is that of miners at the turn of the nineteenth to the twentieth century, that worked in subterranean mines under extremely adverse conditions. In this situation there was an effective loss of working capacity, although the time required for this to become an actual loss varied from one person to another. The Brazilian legislation made this concept broader and defined retirement by length of service (later, by length of contribution) regardless of the type of work involved. Currently this is the benefit that takes the largest chunk out of the social security budget. In addition, we have an odd situation in Brazil. Even semantically, there is a differentiation with relation to other nations. Retraite, retiro, retirement, taishoku, as translations for the word aposentadoria, all indicate a departure from the labour force. Culturally, Brazilians do not understand retirement as a cessation of working activity. In other countries, receiving the benefit is legally conditioned to an effective withdrawal from the labour market. Otherwise, in case the beneficiary returns (or continues) to work, the value is reduced in order to discourage such behaviour. 2 BACKGROUND The development of social insurance in Brazil came about with the creation and later fusion of various retirement and survivors pension funds for specific labour segments, the legal landmark being the 1923 Eloy Chaves Law. The 1988 Constitution represented the last stage in universalisation of social security coverage, in addition to having presented a new concept in social protection social security with its three components (social insurance, social assistance and health). The constitutional text established as basic principles for the new system the universalization of coverage, the equivalence of urban and rural benefits, selectivity in the concession of benefits, irreducibility in the value of pension benefits, equanimity in costing, diversification of the financing base and decentralisation and participation of workers in management. Thus the concept was advancing in the direction of conceptualising social insurance as a collective social contract, an integral part of the very right to citizenship, where benefits would be conceded according to individual necessity and financing would be made according to individual capacity. Arq_20_Cap_12.pmd 397 6/10/2006, 12:37

4 398 FRANCISCO EDUARDO BARRETO DE OLIVEIRA KAIZÔ IWAKAMI BELTRÃO SONOE SUGAHARA PINHEIRO FERNANDA PAES LEME PEYNEAU JOÃO LUÍS OLIVEIRA MENDONÇA According to the new constitutional precepts, workers from the private sector became part of the General Social Security Regime [Regime Geral de Previdência Social (RGPS)] and civil servants came under the institution of a Single Legal Regime [Regime Jurídico Único (RJU)]. There would also be specific career plans for civil servants directly involved in public administration, in autarchies and in public foundations. In the following analysis we will be focusing on the RGPS system. The situation of the social security system has deteriorated over time. Actually, the contributor-to-beneficiary ratio 2 dropped dramatically, as shown in Figure 1. Around 1940, we had roughly 31 contributors per beneficiary; at the beginning of the 80s this ratio was already at 2.9:1 and today we have less than 2 active contributors supporting each beneficiary. Under the current conditions of eligibility, our projection points to a ratio of 1.2:1 in Obviously this figure should be viewed as a scenario, since such a situation could not occur without breaking down the system first. Although any international comparison should be interpreted with the appropriate caution, Table 1 presents, for certain selected countries, the dependency ratio of older persons in the population, which can be used as a proxy for the social security system dependency ratio the latter considering older persons, those over 65 years of age. One can see that, though having a much younger age structure than the majority of selected countries, the Brazilian social security dependency ratio already corresponded in the year 2000 to This ratio was higher than that of countries with an older age structure, such as the United States and Argentina. 2. This ratio of contributors to beneficiaries is the inverse of what is usually known as the social security dependency ratio, i.e., the number of beneficiaries (dependents) per contributors. Arq_20_Cap_12.pmd 398 6/10/2006, 12:38

5 OLDER PERSONS AND SOCIAL SECURITY 399 TABLE 1 DEMOGRAPHIC DEPENDENCY RATIO (POP. 65+ / POP ) AND SOCIAL SECURITY DEPENDENCY RATIO (BENEFICIARIES/CONTRIBUTORS) IN SELECTED COUNTRIES 2000 Countries Beneficiaries/Contributors Population over 65 years of age/active Age Population England Brazil United States Japan Canada Germany France Italy Argentina Sources: Bongaarts (2004), World Bank (2004) and Beltrão et al (2000). So, what could explain this apparent paradox of our having deficient social security in a country with a comparatively young population? The reasons are many, both on the side of beneficiaries and of contributors. The first fact to highlight is that we are retiring not only older persons but young persons as well. Before Constitutional Amendment 20 dated 1998, there was the reduced length of service pension that led to precocious retirements. As shown in Table 2, in 1993, 63% of males retiring according to length of service were under 55; for females, this percentage increases to 74%, constituting an extremely precocious retirement pattern for both sexes. In 2002, the pattern persists, though at 55% and 76%, respectively (only this time for retirement by length of contribution). Part of the postponement that occurred among males has to do with the elimination of the reduced length of service retirement. Insofar as that goes, until quite recently, Brazil was one of the few countries in the world that still offered retirement by length of service/contribution without any age limit. 3 Figure 2 shows that in 1993 only 30.5% of urban retirement benefits in number and 17.8% in value were by old age, completely distorting the characteristic image of retirees being a group of older persons. In 2002, urban retirement benefits by age accounted for 24.6% in number and 18.2% in value, which demonstrates that the situation exacerbated for retirement by age. 3. This situation was relatively circumvented by a new formula for defining pension benefits (the so called fator previdenciário, the social security factor) in the case of private sector workers and prohibited altogether for civil servants, both situations having been changed by Constitutional Amendment 20 dated December 1998 and subsequent laws. Arq_20_Cap_12.pmd 399 6/10/2006, 12:38

6 400 FRANCISCO EDUARDO BARRETO DE OLIVEIRA KAIZÔ IWAKAMI BELTRÃO SONOE SUGAHARA PINHEIRO FERNANDA PAES LEME PEYNEAU JOÃO LUÍS OLIVEIRA MENDONÇA TABLE 2 PERCENTAGE OF PENSIONERS BY LENGTH OF SERVICE/CONTRIBUTION RETIREMENT UP TO THE AGE AT THE DATE THE PENSION STARTED [in %] Age at the date the pension started Men Women Men Women Men Women Until Until Until Until Until Source: AEPS (1995/1996 and 2002). Figures 3 to 6 present the cumulative distribution of all new beneficiaries (not including survivors benefits), disaggregated by household condition, urban and rural, and for two years: 1993 and Even though they are just two points in time, we can have some idea of the evolution of the concession flow. In 1993, the proportion of urban benefit concessions, both for men and women under 50 was 50%. In 2002, this percentage increased to 62% in the case of men and to 67% in the case of women. Considering the threshold of 65 years of age, there was near stability in the proportion of concessions below that age, from 87% and 93% in 1993, respectively, for men and women, to roughly 88% and 90% in Arq_20_Cap_12.pmd 400 6/10/2006, 12:38

7 OLDER PERSONS AND SOCIAL SECURITY 401 Arq_20_Cap_12.pmd 401 6/10/2006, 12:38

8 402 FRANCISCO EDUARDO BARRETO DE OLIVEIRA KAIZÔ IWAKAMI BELTRÃO SONOE SUGAHARA PINHEIRO FERNANDA PAES LEME PEYNEAU JOÃO LUÍS OLIVEIRA MENDONÇA The difference in time is much greater with regard to the rural clientele. In 1993, with the reduction in eligibility age for retirement by old age among rural workers, women under 60 represented roughly 45% of new concessions and, in 2002, this percentage increased to 90%. Considering the 65-year threshold, there was an approximate 20% increase during the period, from an average for both sexes of around 77% in 1993 to 93% in On the side of contributors, there is a breach beginning at the end of the 70s between what is the universe of potential contributors the Economically Active Population (EAP) and the group of those that effectively pay their dues (see Figures 7 and 8). There are multiple causes for this, ranging from unemployment and informalisation that have afflicted the labour market, together with the global scale movement of more and more outsourcing, culminating to a certain degree Arq_20_Cap_12.pmd 402 6/10/2006, 12:38

9 OLDER PERSONS AND SOCIAL SECURITY 403 in lack of control of social security contributions, reflected in the high level of evasion [see Oliveira, Beltrão and Ferreira (1997)]. There is, however, no way of sidestepping the fact that the so-called fiscal wedge, i.e., the differential between the salary paid to workers and the labour cost of these workers for employers on the formal market, plays an important role in this phenomenon. As shown in Figures 9 and 10, the consequence of the drop in the contributor/beneficiary ratio (see Figure 1), since it was expected that a balance be maintained in the system, was a significant rise in contribution rates. Over a period of 60 years, these have practically tripled in the case of employees, and have risen sevenfold in the case of employers! As a result, today we hold the world record in terms of social security contribution rates, with employees and employers totalling, on average, 32%. Arq_20_Cap_12.pmd 403 6/10/2006, 12:38

10 404 FRANCISCO EDUARDO BARRETO DE OLIVEIRA KAIZÔ IWAKAMI BELTRÃO SONOE SUGAHARA PINHEIRO FERNANDA PAES LEME PEYNEAU JOÃO LUÍS OLIVEIRA MENDONÇA Figures 11, 12 and 13 present the population distribution according to its status with respect to labour and pension benefts. The distribution is plotted by gender and age bracket in 1992 and 2002 (data from Brazilian National Household Sample Survey, [Pesquisa Nacional por Amostra de Domicílio (PNAD)]. As defined in the PNAD, the economically active population comprises those who have taken some effective step towards finding work during the reference week or who have worked during all or part of the period. Pensioners are defined as those who, during the reference week, were classified as retirees, or as survivors pensioners in the RGPS or in the social security regime for civil servants of the Union, states or municipalities, or received some sort of social assistance benefit on a continual basis. With the concomitant expansion of the beneficiary population (active or otherwise), the contraction of the active population still not receiving benefits in Arq_20_Cap_12.pmd 404 6/10/2006, 12:39

11 OLDER PERSONS AND SOCIAL SECURITY 405 later life becomes quite obvious. There was also slight expansion in the beneficiary population still considered EAP, though with a much slighter increase than that felt by the beneficiary population. For men the contraction of formal workers as compared to the growth of the informal sector is quite perceivable. Among women, one can see expansion both in the formal and informal markets, though growth is greater in the informal sector. In the case of the rural population, these movements are described in more detail in other chapters (see articles by Delgado and Cardoso Jr., Saboia, Camarano and Pasinato and Beltrão et al). 3 FUTURE PERSPECTIVES If the current social security situation is one of insolvency, its future is absolutely catastrophic since population aging will make its weight felt more strongly then. Arq_20_Cap_12.pmd 405 6/10/2006, 12:39

12 406 FRANCISCO EDUARDO BARRETO DE OLIVEIRA KAIZÔ IWAKAMI BELTRÃO SONOE SUGAHARA PINHEIRO FERNANDA PAES LEME PEYNEAU JOÃO LUÍS OLIVEIRA MENDONÇA The age-sex population distribution illustrated in Figures 14 to 19 demonstrate with much clarity the growth of the older persons contingency as compared to the other population groups. As the graphs demonstrate, the percentage of older persons in the population will have grown from the current 16% to approximately 30% by In terms of the contributors-to-pensioners ratio (social security dependency ratio), the actuarial demographic simulation model developed by the Institute of Applied Economic Research (IPEA)/Brazilian Institute of Geography and Statistic [Instituto Brasileiro de Geografia e Estatística (IBGE)] [Beltrão et al (2000)] points to a scenario of 1.2:1 in 2030, as was already mentioned. Clearly, this is not a projection but a scenario since, in this case, coeteris paribus, the contribution rate would be almost 100%! Obviously, given the exhaustion of the contributory capacity, this scenario would never come into effect. Figure 21 illustrates a scenario Arq_20_Cap_12.pmd 406 6/10/2006, 12:39

13 OLDER PERSONS AND SOCIAL SECURITY 407 Arq_20_Cap_12.pmd 407 6/10/2006, 12:39

14 408 FRANCISCO EDUARDO BARRETO DE OLIVEIRA KAIZÔ IWAKAMI BELTRÃO SONOE SUGAHARA PINHEIRO FERNANDA PAES LEME PEYNEAU JOÃO LUÍS OLIVEIRA MENDONÇA Arq_20_Cap_12.pmd 408 6/10/2006, 12:39

15 OLDER PERSONS AND SOCIAL SECURITY 409 of the rising financing needs to fund the public system (RGPS), before and after the implementation of all the rules foreseen in Constitutional Amendments 20 and 41 (Social Security Reform). This is another case where the scenario will not occur, as something will necessarily happen first: either the insolvency of the system or a profound reform. The first solution, i.e., insolvency and the consequent indiscriminate rupturing of promises and rights, should be avoided due to the tremendous social costs it would entail. For many older persons, especially those who have lost their working capacity and/or the condition to re-enter the labour market, this would mean simply being condemned to abject poverty. A nation that has the least bit of respect for its citizenry would never accept this type of outcome. Another even more dramatic form of rupture is inflationary recrudescence actually a dissimulated form of confiscation of rights and degradation of liabilities that cannot be honoured, without the need of holding a great political debate on the matter. As we all know, this medication is extremely pernicious and must also be avoided. The only decent solution left, therefore, is the alternative to re-think the Brazilian social security model, remaking pacts on rights and obligations. Naturally this is a politically challenging subject, much more so because electoral-political damages appear right away, whereas occasional benefits derived from the reparation of the system occur much more gradually over time. Even so, when the total number of promises by far exceeds the possibilities of financing them, there is only this way out. While we persist in the illusion that a wasteful and unjust system as the Brazilian one can be maintained which even retires young people in the prime of their working years we will be committing an enormous irresponsible act with regard to the older persons in this country. The fundamental issue is how to adjust the social security system in the midst of transformations in the economic, political and social spheres and in variable demographics, within societies with serious problems of income inequality, great contingency of workers outside the formal labour market, low schooling and governments seriously afflicted by budgetary concerns. Social security policies cannot be considered separately as they make up a more wide-ranging scenario involving macro and micro issues such as how to elevate growth rates, control inflation and interest rates, control public and private sector debt, increase the level of schooling of the population, raise employment rates, improve income distribution, boost the formal sector of the economy, etc. The pursuit of balance is a continuous process of adjustment, but changes always need to be defined within a reasonable term of transition so as to allow both the population and Arq_20_Cap_12.pmd 409 6/10/2006, 12:39

16 410 FRANCISCO EDUARDO BARRETO DE OLIVEIRA KAIZÔ IWAKAMI BELTRÃO SONOE SUGAHARA PINHEIRO FERNANDA PAES LEME PEYNEAU JOÃO LUÍS OLIVEIRA MENDONÇA institutions time to reformulate their bearings based on new realities and on a nationwide discussion, with the main actors involved ready to shape them. BIBLIOGRAPHY ANUÁRIO ESTATÍSTICO DA PREVIDÊNCIA SOCIAL (AEPS). Brasília: MPAS, 1993,1998 e Suplemento histórico, 1980 a Brasília: MPAS, v. 3, p , BARROS. R. P. de, MENDONÇA, R. S. P. de. Determinantes da desigualdade no Brasil. Rio de Janeiro: IPEA, 1995 (Texto para Discussão, 377). BELTRÃO, K. I. et al. MAPS: uma versão amigável do modelo demográfico-atuarial de projeções e simulações de reformas previdenciárias do IPEA/IBGE. Rio de Janeiro: IPEA, 2000, 43p. (Texto para Discussão, 774). BONGAARTS, J. Population aging and the rising cost of public pensions. Populations and Development Review, v. 30, p. 1-23, Mar BRASIL. MPAS. Acessível em: < CASELLI, G., LOPEZ, A. D. Health and mortality among elderly populations. In: LASLETT, P. What is old age? Variation over time and between cultures. New York: Claridan Press, Oxford, p , DATAPREV. Acessível em: < IBGE. Censo Demográfico, 1980, 1991 e Pesquisa Nacional por Amostra de Domicílios. Rio de Janeiro, 1992, 1997, 1998 e Acessível em: < OLIVEIRA, F. E. B. de, BELTRÃO, K. I., FERREIRA, M. G. Reforma da previdência. Rio de Janeiro: IPEA, 1997, 75p. (Texto para Discussão, 508). OLIVEIRA, F. E. B. de et al. Fontes de financiamento da seguridade social brasileira. Rio de Janeiro: IPEA, 1994 (Texto para Discussão, 432). WORLD BANK. A world bank policy research report. Averting the old age crisis. Policies to protect the old and promote growth. The World Bank Group, Available at: < Keeping the promise of old age income security in Latin América: a regional study of social security reforms. Washington, D.C.: Regional Studies Program, The Office of the Chief Economist Latin America and Caribbean Region, Arq_20_Cap_12.pmd 410 6/10/2006, 12:39