How life-table right-censoring affected the Brazilian social security factor: an application of the gamma-Gompertz-Makeham model

Abstract

Automatic Adjustment Mechanisms (AAMs) are legal instruments that help social security systems respond to demographic and economic changes. In Brazil, the Social Security Factor (SSF) was introduced in the late 1990s as an AAM to link retirement benefits to life expectancy at the retirement age, hoping to promote contributory justice and discourage early retirement. Recent research has highlighted the limitations of right-censored life tables, such as those used in Brazil. It has recommended using the gamma-Gompertz-Makeham (\(\Gamma GM\)) model to estimate adult and old-age mortality. This study investigated the impact of right-censoring on the SSF by comparing the official SSF and other social security metrics with a counterfactual scenario computed based on fitted \(\Gamma GM\) models. The results indicate that from 2004 to 2012, official life tables may have negatively impacted retirees’ income, particularly for those who delayed their retirement. Furthermore, the \(\Gamma GM\) fitted models’ life expectancies had more stable paths over time, which could have helped with long-term planning. Our findings are significant for policymakers as they highlight the importance of using appropriate mortality metrics in AAMs to ensure accurate retirement benefit payments. They also underscore the need to consider the potential impacts of seemingly innocuous hypotheses on public action outcomes. Overall, this study provides valuable insights for policymakers looking to enhance the effectiveness and fairness of social security systems.