Private pension: progressive or regressive model? – 01/21/2024 – Market

The government responded to a long-standing demand from the private pension sector and allowed flexibility in choosing the taxation regime.

Now, investors can switch from the progressive to the regressive model, or vice versa, after investing until the time of the first redemption, whether early or at the beginning of receiving the benefit.

However, be careful: the exchange can only be made once. Therefore, experts advise that it only occurs at the time of the first rescue. Such a choice can also be made by heirs or legal representatives.

“The new law came after a lot of complaints about the early choice. It was difficult to predict which would be the most advantageous taxation”, says Luciana Pantaroto, financial planner and tax lawyer.

Regressive taxation

In this model, the IR (Income Tax) charged regresses according to the contribution time. If withdrawn before two years, the maximum rate of 35% applies.

Every two years, it drops five percentage points, down to a minimum of 10% after ten years. Therefore, this model is more advantageous for those who are not going to change their private pension anytime soon.

It is necessary to pay attention to the PMP (weighted average period), which is the time considered by the Revenue. It does not take into account the total time elapsed since the first contribution, but how much was contributed in how much time.

If the contribution was small at the beginning and only at the end of the contribution it became more robust, the contribution PMP tends to be low, which increases the income tax rate.

Progressive taxation

In this regime, the greater the value of the benefit received upon retirement, the higher the income tax rate charged (see table below).

It follows the classic individual IR table. Therefore, it is only worth it for those who will earn less than R$2,826.65 per month according to the 2024 table, considering the sum of all earnings, such as salary, rent, private pension and INSS. In case of higher monthly incomes, the regressive regime is recommended.

“For taxpayers with lower amounts or who need to redeem amounts in the short term, the progressive regime is more advantageous”, says Angela Andreoli, researcher at the tax studies center at FGV (Fundação Getulio Vargas).

The model can also be advantageous in the case of early redemptions, as it has lower rates than the regressive regime in the short term.

“We cannot forget that the private pension plan must always be implemented, contracted and thought about in the long term, as it is intended for retirement”, says Marison Pedrolo, president of Contabilize Plus.

PGBL

In the PGBL (Free Benefit Generating Plan), IR is charged on the total value of the withdrawal, that is, on the amount invested plus what it yielded. This disadvantage, however, can be compensated by exempting up to 12% of annual taxable income in the full IR declaration.

It is recommended for those who declare their income tax using the complete form, contribute to the INSS and earn more than R$ 139 thousand per year (around R$ 11.6 thousand per month), as it would guarantee a deduction greater than the R$ 16,754.34 of the simplified IR declaration.

VGBL

In VGBL (Free Benefit Generating Life), the tax only applies to the income from what was invested. It, however, does not give the right to IR deduction, like the PGBL.

As the vast majority of Brazilians do not declare their IR using the full form nor do they earn more than R$139,000 per year, VGBL is the most sought after type of private pension.

How to choose the best private pension model?

Experts warn that the investor must take several factors into account in this choice, including income, age and income tax deductible expenses.

In case of low income, the progressive VGBL regime. As VGBL only applies to income, it is possible to pay less tax in the case of a simplified IR declaration. Furthermore, in the progressive system, there is an exemption of up to R$2,112 in monthly earnings.

In most cases, however, the most suitable option is the regressive model, which allows a lower rate of 10% if the redemption is made after ten years of investment.

“In addition to taxation, we must be aware of the fees charged for the administration of pension plans”, warns Andreoli, from FGV.

With the help of Andreoli and professor Liao Yu Chieh, financial educator and director of Faculdade Sírio-Libanês, the Sheet did a simulation of what progressive and regressive taxation would be in some examples (see below).

In this account, made for exclusively educational purposes, a single contribution was considered today and an annual income of 10% for the coming years.

It is worth noting that banks and insurance companies also offer simulation platforms on their websites, where you can choose how much you can contribute or how much you want to earn in the future to choose the most advantageous model.

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Simulations

1) 30 year old woman:

A young woman, aged 30, who wants to retire at the age of 65, earning R$7,000 a month from private pension. Today, her salary is R$11 thousand, which adds up to R$132 thousand per year (the 13th is not included in the calculation of taxable gross income). It already has an emergency reserve set up.

In this case, according to experts, the most suitable model is the regressive VGBL.

With VGBL she would be able to deduct R$ 16,754.34 from the simplified income tax declaration. If you chose the PGBL, the deduction would be R$ 15.84 thousand, at most, considering only the salary. Now, if she has other deductible expenses in addition to social security, such as INSS and medical expenses, for example, the PGBL may become more advantageous.

With the regressive taxation regime, she will pay a minimum rate of 10% on each installment received monthly. In other words, your net gain will be R$6,300 per month from the age of 65.

If she wants to redeem her private pension before the deadline, she must migrate to the progressive regime if she has been contributing for less than four years. In this regime, the maximum tax rate is 27.5%, while in the regressive regime, 35% to 30% is paid in case of redemption before four years.

2) 45 year old woman:

I would like to retire at age 60, with a monthly income of R$5,000 in private pension. He earns R$8,000 a month (R$96 thousand a year) and has no emergency fund.

In this case, the ideal is to set up the emergency reserve first, even though retirement age is approaching.

When choosing a private pension, the most suitable model is the VGBL, as the simplified IR declaration would give you a greater discount.

Without considering other deductible expenses, the maximum deduction with PGBL would be R$11.52 thousand. In the simplified declaration, however, she would get a greater deduction, of R$ 16,754.34, according to the Revenue rule. Therefore, VGBL is more suitable.

In the case of taxation, in principle, the recommended model would be the progressive model, as it does not have an emergency reserve. If she needs to withdraw her pension earlier, due to an emergency, she will pay less tax. If you can carry the investment for longer, you can switch to the regressive model at redemption time.

3) 50 year old man:

He plans to retire at age 65, earning R$6,000 a month. Today, his salary is R$15,000, totaling R$180,000 per year.

In this case, the PGBL model is the most suitable, as it will give you a greater reduction in income tax than the VGBL. Based on the salary alone, he will be able to take up to R$21,600 from the contribution calculation base, if he invests this entire amount per year in the private pension.

The recommended tax model is regressive, as he still has 15 years of contributions ahead of him. Thus, with the minimum rate of 10%, he would earn R$5,400.

If you chose the progressive option, you would pay the maximum rate, 27.5% on the R$6,000, leaving you with only R$4,350, including the personal income tax deduction.

4) 23 year old:

An informal worker, still without financial reserves and investments, he would like to earn R$5,000 when he retires at age 70. Today, he earns R$4,000 per month, the equivalent of R$48 thousand annually, and does not contribute to the INSS.

In your case, the regressive VGBL model would be the most appropriate, allowing a greater reduction in income tax and the incidence of the lowest possible rate when receiving the benefit.

5) 55 year old man:

Assuming he earns R$10,000 a month and also contributes to social security. According to the INSS, the forecast is that you will earn R$4,500 at age 65. He would like to supplement his income with another R$2,000.

In this case, the regressive VGBL private pension is ideal. For the value of his annual income, he will get the biggest reduction in IR through the simplified declaration, which takes the advantage of choosing a PGBL. And, as he still has ten years of contributions ahead of him, he can pay the minimum rate of 10% on the regressive table.

Thus, in VGBL he gets a reduction of R$ 16,754.34 in his annual income tax. If it were the PGBL, the discount on taxable income would be a maximum of R$14,400.

As for taxes: even though the R$2,000 from the private pension is within the exemption range of the progressive table, when adding the benefit he will receive from the INSS, his monthly earnings add up to R$6,500 and jump to the highest rate of this model , 27.5%, which is equivalent to R$ 1,787.5. In the regressive form, only R$650 will be withheld at source throughout the month.