If you read nothing else, read this…
• Brazil’s pensions regime is considered by many actuaries to be one of the most sophisticated in the world.
• Just 30% of Brazil’s private pension provision is defined benefit (DB), yet these schemes represent about 70% of pension assets under management.
• Employers are legally obliged to reimburse staff whose travel costs to and from work, whether using public transport or their own vehicle, exceed 6% of their base pay.
Brazil’s pension arrangements are regarded as some of the most sophisticated in the world, says Viola Caon
Social security has been at the heart of Brazilian government policy for many years in a bid to combat poverty. Consequently, public and private benefits provision in the world’s fifth most populous country is typically intertwined. Its pension arrangements are a case in point, being collectively regarded by many actuaries as one of the most sophisticated pension models in the world.
The arrangements comprise three pension schemes. The Regime Geral de Previdencia Social is a mandatory, pay-as-you-go defined benefit (DB) scheme for private-sector workers. It is managed by the National Social Insurance Institute (INSS) and requires employees to contribute between 8% and 11% of their monthly earnings. Employer contributions vary according to the sector in which they operate.
A separate DB pension scheme, Regime Preprios de Previdencia Social, operates for civil servants. The third scheme, Regime de Previdencia Complementar, is a voluntary plan comprising two funding models: open and closed.
Open pension funds are insurance contracts typically used by small to medium-sized enterprises, while closed funds are private, non-profit schemes, supervised by Secretaria de Previdencia Complementar, the State Secretariat of Pension Funds, and typically used by larger employers.
Closed pension funds can be DB, although most schemes are now closed to new entrants; defined contribution (DC) or a hybrid structure combining DC and DB elements. Francois Racicot, a principal at Mercer, says: “Overall, about 30% of pension plans are DB. But, although most are frozen, they still represent 70% of assets under management.”
In addition to private pension provision, there is the Fundo de Garantia do Tempo de Servico, the employees’ severance fund, which the Brazilian government launched in 1966 with objectives including the provision of severance pay and the creation of a savings fund for employees.
The fund is managed by the state and all employers are obliged to contribute 8% of each of their employees’ monthly salary. Employees can access the funds if they become unemployed or retire. Racicot says: “It is meant to be a termination indemnity, but it basically works as a DC plan.”
Employers are also legally obliged to reimburse staff whose travel costs to and from work, whether using public transport or their own vehicle, exceed 6% of their base pay.
Other employee benefits provided by private employers include private medical insurance (PMI). However, Olavo Chiaradia, head of reward information services Brazil at Hay Group, says plans vary considerably between employers and employees.
“For executives, senior managers and above, the most common is the executive plan, where they have free choice of hospitals and services,” he says. “For co-ordinators and below, there is the intermediate plan.”
Employers typically pay 85% of an employee’s PMI costs, with employees funding the difference. Dental plans are also growing in popularity, as are voluntary benefits, which can include education for dependants and subsidised English courses.
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