Global Meeting on Population and the Generational Economy, August 2020
Presentation: Sabrina Fortes , Bernardo Queiroz, Cost of transition of the Brazilian Pension Program from PayGo to a fully-funded system: an analysis in different macroeconomic scenarios
Pension reform, is a hot topic in Brazil, both in civil society and in the political body, due to previous ineffective parametric reforms and the demographic transition process. Thus, one of the alternatives presented is the implementation of a fully-funded system in substitution to the current pay-as-you-go pension program. This paper aims to investigate the public cost of an eventual change from the Paygo to the funded pension, in order to analyze its implementation feasibility. To this end, we perform an actuarial estimation of the present value of the flows of benefits and contributions to determining the value of the transition cost, weighted in different survival rates by age cohort and different interest rates. We used data from the Brazilian Public Pension Programs, mortality rates from the United Nations Population Division and apply the methodology presented in Bommier, et.al (2004). The calculations of the present values showed that, in case of drastic reform to the capitalization, the Federation would have to spend about 9 trillion reais, without considering any discount rate. In other words, it would have to carry out financing that would bear a debt 145% higher than GDP..As a result of the study, it appears that the cost for a complete transition to the capitalized regime would be too high, even in an optimistic macroeconomic scenario, opening the discussion to other more moderate possibilities.
File: NTA2020 Fortes
Paper: NTA2020 paper Fortes
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