Ciro is considering changing the entire Social Security system.

247 - Ciro Gomes and his team are studying a reform proposal that would unify the Social Security system for civil servants and other workers into a single system where two regimes would coexist: the current pay-as-you-go system and a funded system with individual accounts. For the former, the retirement ceiling would be lower than the current R$ 5,6, something between three and four minimum wages – meaning the current system would be maintained for the poorest. Above that, benefits would depend on the individual's contributions to the funded system.

In a report by journalists Marta Watanabe, Ricardo Mendonça and Sérgio Lamucci (if you wish, read the full article). hereIt is revealed that Ciro's team is considering a partial migration from the current system, which is mostly based on pay-as-you-go funding. The goal would be to implement a "multi-pillar" system, including a capitalization regime.

The first pillar would be to separate the entire welfare component, which is the set of social benefits not linked to contributions, from the Social Security accounts. This portion would be financed directly with resources from the National Treasury. The second pillar would consist of a contributory pay-as-you-go system, but with the establishment of a maximum retirement benefit ceiling below the current R$ 5.645,80. This new ceiling, yet to be defined, would tend to be between three and four minimum wages. Everyone could participate in this system, but limited to this ceiling; the payment of workers' social security contributions would be based on the new limit.

This pay-as-you-go system would coexist with the third pillar, which would be a capitalization system with individual accounts. It would work like this: those who want future earnings above the new ceiling would also contribute to the capitalization system. The final extra benefit would be calculated based on what was saved over the years of work.

The model would be applied both to the Public Service Pension Scheme (RPPS) for civil servants and to workers who are currently in the General Social Security Scheme (RGPS).

Economists close to Ciro's economic team point out that Chile adopted a similar system. But with a major difference, they warn. In Chile, the entire system was shifted towards capitalization. Unlike the proposal being studied by Ciro, there was no adoption of a mixed system with distribution up to a certain limit.

Ciro's associates have been visiting banks and brokerage firms to present the proposals being studied by the PDT (Democratic Labour Party) candidate. Besides pension reform, they discuss other aspects of fiscal policy, exchange rates, tax reform, and labor reform. Aware of the market's resistance to Ciro's name, they explain the projects in detail. There is a clear concern to offer predictability to these interlocutors.

In the current pay-as-you-go model, active workers contribute to current retirees with the assurance that, when they become inactive, other generations will finance their benefits. However, the proposal being studied by Ciro Gomes highlights that the continuous reduction in the birth rate and the aging of the population has resulted in a decreasing number of active workers to finance the inactive population.

Another issue raised concerns the structural changes in the labor market, especially as a result of the digital technological revolution, with the consequent shift from formal salaried employment to new jobs in the service sector.

With fewer formal workers and a shrinking wage contribution base, the current system, even reformed, will again face funding problems in the medium term, they assess. Hence the need for a system change, they argue.