Brazil's Temer unveils pension reform, sets retirement age at 65

BRASILIA (Reuters) - Brazil President Michel Temer appealed to political leaders on Monday to back his unpopular proposal to reform the country’s costly pension system that would force Brazilians to work more years before being eligible for full retirement benefits.

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The plan, aimed at restoring fiscal discipline to in an effort to regain investors’ confidence, would set a minimum age of retirement at 65 years in a country where people work on average until the age of 54 years before retiring.

Temer said this was necessary to ensure the system does not collapse because of lack of funding and would be financially sustainable for future generations.

“We urgently need to make changes to preserve the pension system. ... We have to put back the date of retirement and that can only be done by establishing a minimum age,” Temer said in a meeting with congressional leaders.

The controversial pension reform plan at the heart of his austerity drive aims to shore up an economy mired in its worst recession on record by bringing under control a widening budget deficit.

The proposal is also expected to reduce death pension benefits and raise social security contributions by civil servants.

The government, however, will not scrap an exemption from taxes on agricultural commodity exports that could raise revenues by more than 5 billion reais ($1.45 billion) per year, a senior government official said on Monday, denying media reports the government would end the tax break to raise income.

The pension reform, which had been promised by Temer since he became president in May, faces fierce opposition from powerful labor and civil servant unions that threaten to organize street demonstrations to block the changes.

Despite such threats, the government will send the reform plan on Tuesday to Congress where is expected to face a heated debate that could last several months.

Expenditures from social security make up about 40 percent of the government’s primary spending, or spending before debt payments. It is considered the main threat to the country’s finances in the future.

Social security expenditures have soared to an estimated 2.7 percent of gross domestic product in 2017 from 0.3 percent in 1997, according to government estimates.

Several states, including Olympics host Rio de Janeiro, have put off pension payments amid a growing fiscal crisis that threatens to further delay a recovery of Latin America’s largest economy.

($1 = 3.4569 reais)

Additional reporting by Thais Freitas; Editing by Daniel Flynn and Diane Craft