After all, is private pension worth it? – 07/30/2023 – From Grain to Grain

Every six months, I do a blood test from those that look like a blood donation, that is, complete. In the last one, my doctor, Dr Ingrid Serafim asked: how often do you eat red meat? I eat infrequently, so one of the indicators in the exam showed the deficiency of some vitamins present in red meat. I came back with the question: isn’t eating red meat bad?

I won’t go into the nutritional details as I’m not an expert on that, but I just want to make the analogy about guidance. Without a doubt, too much red meat is bad. Also, there are cuts of meat that are not suitable if you eat them frequently. But if you don’t eat red meat, your body will lack something and you’ll have to supply it in another way.

The same goes for private pensions. No one necessarily needs to have a private pension, just as you don’t need to eat red meat either. Just as too much investment in pensions can be bad, having nothing can leave you without some benefits.

I see some talking bad about the product, but, you can be sure, those who speak badly are unaware of the benefits.

Before we talk about the two main benefits, let’s start with what doesn’t make a lot of sense. In this case, there are three critical situations that need to be considered:
I) If you believe that the possibility of you dying in the next 10 years is low, you should not have a large share of your private pension investments. Thus, if you have a lot of exposure from your private pension investments, an analysis should be made to assess whether it makes sense to reduce;
II) If you apply to the same private pension plan for more than 6 years and it is a fixed income plan, hurry to evaluate portability to another one. Possibly, you have an expensive plan;
III) If your private pension fund is simple fixed income, referenced to the CDI and has a management fee greater than 1% per year, you must assess whether the return has really not been below the CDI for many years and, therefore, portability should be considered;

So who can a private pension plan be useful for?

I have 15% of my resources in private retirement plans. I am 49 years old and for over 20 years I have earned wages like any other CLT worker.

The application in a PGBL-type plan brought me two benefits:
1) it saved me a lot of tax and still does to this day, as it postponed payment in the past, I will only pay 10% IR in the future instead of 15% in traditional applications, there are no quotas, nor any IR payment until I serve. No doubt it was very good to have invested.
2) The pension vehicle is extraordinary in equity succession. I’m not so young anymore. In case something happens to me, this part of my assets already goes to the heirs, not going through an inventory, that is, reducing costs and bureaucracy. This 15% will facilitate the process of inventorying the rest of the assets. Currently, in Brazil you will hardly pay less than 5% of the equity in the inventory, because ITCMD alone already has at least 4% and in some states 8% of the equity.

These are the two justifications for having a private pension: income tax savings, that is, tax planning and succession. Both PGBL and VGBL-type products would have these advantages, but PGBL-type products should only be used for those who file the tax return using the complete model and within the limit of 12% of gross taxable income.

If you don’t care about either of these two reasons, then private pension is not for you.

I always say that if millionaires do something, it must have some basis. After all, they didn’t get there by wasting opportunities.

Millionaires either have an exclusive fund structure or have private pensions, when they do not have both products to enjoy benefits such as those mentioned above. All of them are concerned with paying less income tax and with the succession of their assets.

However, they do not apply to any pension product.

So, yes, it is worth having a private pension, but not just any. Like any investment, choosing the product well is as important as deciding on the product.

Michael Viriato is an investment advisor and founding partner of Investor House.

Talk directly to me via email.

Follow and like De Grão em Grão on social networks. Follow the investment lessons in Instagram.

PRESENT LINK: Did you like this text? Subscriber can release five free hits of any link per day. Just click the blue F below.