Analysis of the Brazilian Pension System:

During the last couple of decades various countries have reformed their pension system. Particularly Latin America has been the platform of many pension reforms during the 1980s and 1990s. Chile pioneered in making a radical change from a publicly managed Pay-As-You-Go (PAYG) system to a privatized fully funded system and it was then followed by numerous neighboring countries. However, Brazil took a different approach as it kept its PAYG system. Currently Brazil faces several threats and challenges for the sustainability of the pension system. Examples are the ageing of the society, too generous benefits that are paid to the public workers and the increasing income inequalities. These threats and challenges lead to the question how Brazil can change its pension system in such a way that allows them to cope with problems and enhance the sustainability of the system. This paper analyses the several options a country can choose to design its pension system and lists of each the advantages and disadvantages. Subsequently it takes a closer look at the current system in Chile and the negative and positive effects of that reform. The paper continues with an examination of the problems in the Brazilian pension system. Combining the (dis)advantages of the pension design options and the characteristics of Brazil the paper finds that it would be in Brazil’s best interest to reform its system into a fully funded system like Chile. Additionally, the paper gives several recommendations on how the reform should be implemented in Brazil. The paper finishes with suggestions for further research that relate to the winners and losers of the reform and the transition and administration costs.