Private Pension Investments in Brazil have not Grown Since 2016

RIO DE JANEIRO, BRAZIL – The progress of the welfare reform, that has as one of its changes the reduction in the value of retirement pensions, did not serve to elevate the number of Brazilians who invest in private welfare plans.

Today there are about 13 million investors in private plans, the same number as in 2016, according to Fenaprevi.

What has changed recently is that those who already had invested are suspicious that the Brazilian economy will recover.

The numbers of net funding (difference between investments and redemptions) have increased again after having slowed down in the recession, and the balance of the reserve (the money accumulated in the funds) continues to increase.

“The private pension market is pro-cyclical. When the economy grows, it also grows,” says Jorge Nasser, president of FenaPrevi. He suggests the slow recovery is due to the difficulty of getting the segment off the ground.

“The size of the pension market will depend on the capacity to generate income. There has been a timely recovery in the last two months, but I don’t think the movement was large enough to say that we have changed the level,” says Rogério Calabria, superintendent of products at Itaú.

The 13 million investors in pension plans are equivalent to about a third of the number of workers with signed employment contracts in the country – a slice of the population with a stable income that is higher than that of informal workers and those who are self-employed.

As the labor market recovers with the occupation of these last two groups, the average monthly labor income is falling: the quarter ended in July at R$2,286 according to the Brazilian Institute of Geography and Statistics (IBGE); this amounts to a little more than double the minimum wage.

Too Many People Are Without Enough Resources to Save

Experts emphasize that everyone should have resources to save, but this does not happen because financial education is low and also because of the economy. “Since 2015, the crisis has led people to have to withdraw money instead of saving. So they can’t invest in anything that is long term,” says Professor Michael Viriato of Insper.

From a practical point of view, the private pension plan serves to complement public retirement, ensuring that the worker does not have a decrease in income when leaving the labor market.

The point is that a large portion of the population has little need to supplement their income in old age because they retire with amounts close to what they received in active employment, which is estimated to be up to double the minimum wage. The share of retirees who receive up to double the minimum wage is 83 percent.

The public retirement pension in Brazil restores 82 percent of the income of the active period, one of the highest rates in the world.

Until now, the only worker who actually needed to save was the one with a salary higher than the Social Welfare ceiling, which is R$5,839.

They are the workers with the highest income and the highest savings capacity, and they could be stimulated by social security plans offered by employers. But here, too, the difficulty of resuming formal employment and the change in labor relations weigh heavily.

Gilberto Abreu, Santander’s investment director, estimates that only 25 percent of the population earning above the ceiling has investments to supplement their income. He adds another gap: these people may have pension plans, but they are not calibrated to ensure that they save enough monthly to effectively supplement their income.

Are There Enough Suitable Products?

Meanwhile, the market struggles to look at the bottom of the pyramid. Santander launched a fixed-income pension plan with an administration fee of one percent per year and a minimum investment of R$30 – 85 percent of the money from the fixed-income. The average administration rate of these plans is 1.8 percent per year.

Traditionally, pension plan costs are high, which was possible in a scenario of high interest rates. The Selic is at 6 percent and the expectation that it will remain at an even lower level for a long period and causes the costs to undermine the profitability of the investment.

The fall of the rate becomes a sales strategy much like what happened with the loading rates (which were left with a percentage of the money invested and withdrawn from the investment) last year.

Still, it does not mean that the product will attract more investors. “Brazilians no longer save for themselves, even more so in pension plans that were badly talked about. People are prejudiced about applying”, adds Viriato.

For the full picture, see our Brazil Tax Reform: Complete Guide.

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