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The spread of benefits
Alleviating poverty in Brazil

By: Helmut Schwarzer and Guilherme Delgado
Insights 42, June 2002

Social security coverage of the Brazilian elderly has never been better than at the end of the 1990s. According to a household survey by Pesquisa Nacional por Amostra de Domicilios (PNAD), 77.3% of people aged 60 or over were receiving a regular benefit from a social security scheme (see Graph 1). In the early 1970s, social security coverage in the country was close to 30%. What explains the rise in coverage?

New measures
In the 1970s unconventional measures to expand coverage were introduced in Brazil. The most notable of these was the creation of a non-contributory rural scheme (1971) followed by social assistance pensions (1974), all providing flat-rate benefits. The new constitution in 1988 improved the coverage and generosity of these schemes. As traditional urban contributory pensions introduced in the 1920s reached maturity, non-contributory schemes became responsible for extended coverage and the breaking of the barriers of informal labour and poverty, which are common in developing countries. By December 2001 the Brazilian Social Security Institution INSS paid out 20 million benefits, 6.3 million of these in the rural scheme and 2.1 million in assistance pensions.

The rural scheme provides benefits covering old age, disability, sickness/maternity, labour-related accidents and for widows or orphans of rural workers. Old age pensions are granted at age 60 for men and age 55 for women, five years below the retirement ages of urban dwellers. The insured are not required to meet contribution requirements, but to document previous periods of rural work. Benefits are equal to one minimum wage (US$87 in April 2002).

Cost and benefits
The scheme is financed partly through a contribution of 2.2% of the value of the agricultural product sales. However, this revenue barely covers one-tenth of the total cost of rural benefits. Thus the deficit requires annual transfers from the urban workers scheme and the Treasury of about 1% of the GDP.

Yet such a deficit is justified by the enormously positive socio-economic impact of the programme. Recent research by IPEA showed that the rural pensions

significantly reduce poverty among the elderly. In the north-east and south regions, 85.3% and 90.8% respectively of the beneficiaries' households were above the household income threshold of US$1 per person per day

facilitate household investment in agricultural production and improve living standards within the household

enabled the survival of the rural small scale and household economy in the 1990s

reduce rural-urban migration

strengthen family ties as the elderly share their pension income within the household

ensure significant income redistribution from the rich urban south-southwest to poorer areas in Brazil

improve the wellbeing of women who are entitled to an independent pension.

The main lessons to be learned are:

Relying on contributory pensions alone cannot extend social security coverage beyond formal employment in developing countries. A non-contributory scheme is required to cover the excluded population.

Flat-rate benefits proved to be efficient in extending coverage. Despite complaints about the low unitary value of the pensions, they induce significant income redistribution and poverty alleviation.

Sustaining non-contributory pensions is costly, but these have a large and positive social impact.

A universal social rights approach allows a targeting of the poorer segments of the population without stigmatising beneficiaries.

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