Public securities for retirement x provident fund – 05/07/2023 – Market

The formation of a pension savings for retirement is one of the main concerns of Brazilians. A recent survey by Anbima (Brazilian Association of Financial and Capital Market Entities) in partnership with Datafolha showed that around 60% of the population has not yet started a retirement reserve, but intends to.

Among the main alternatives for setting up a social security reserve are private pension funds and, more recently, Treasury Direct RendA+ public bonds, which offer a fixed rate of return plus the variation in inflation measured by the IPCA (National Index Broad Consumer Pricing System).

In just over two months since its launch, Treasury RendA+ public bonds attracted approximately R$500 million from approximately 36,000 investors. In addition, the average rate of sale of the bond is around R$10 million a day, which would lead to a stock of R$2.5 billion in one year, according to Treasury calculations.

The private pension industry, in turn, reached BRL 1.2 trillion in assets in February, with a net inflow of BRL 3.4 billion in the first two months of this year, according to data from Fenaprevi (National Federation of Private Pension and Life).

According to market specialists, both pension funds and public bonds intended for retirement have advantages and disadvantages, and the choice for another will depend on the investor’s profile and his long-term goals.

Head of investment operations at Unicred do Brasil and CFP financial planner for Planejar, Patrícia Palomo says that, although complementary, there are some important differences between the two alternatives.

Bonds are a simpler and more accessible option for investors who may not yet have a high net worth to keep it invested for a few years until retirement, says the expert, noting that the minimum investment in bonds starts around of BRL 30.

“The title allows the investor to start forming complementary savings for retirement with little resources”, says the expert, adding that the strong adhesion of new interested parties in a short time reflects the ease with regard to people’s understanding of the new product.

In addition, he adds, they are also a cheaper option compared to pension funds, which normally charge management fees between 1% and 2% per year to remunerate banks, managers and distributors.

In the case of securities, there is a custody fee charged by B3 that varies between 0.50% and 0.10% per year, depending on the term. However, those investors who do not make early redemptions will be exempt from the fee.

If the monthly income obtained from the payment of interest is below six minimum wages, the investor is also exempt from the custody fee. “The Treasury’s initiative is very important as a way of democratizing the alternatives to complement the public pension”, says Patrícia.

In a simulation carried out by a specialist from Unicred, which considers an investment of R$ 10,000 in a pension plan with the same real return of 6.1% of RendA+ over a period of 12 years, but with the difference of an administration fee of 1.5% of the fund, against a zero custody fee for the public security, the investor would have a balance of R$29,200 in the securities at the end of the term, and R$25,500 in the pension plan.

Pension funds are more expensive, but offer an advantage when filing the IR

Regarding pension funds, the manager of B.Side Wealth Management, Carolina Taira, says that an important advantage concerns taxation. While the rate in the modality reaches a minimum level of 10% after a period of ten years, in public bonds, the percentage only drops to 15%, after a period of two years.

The manager also says that another advantage of the funds is that, in pension plans of the PGBL type (Free Benefit Generator Plan), the investor can deduct from his IR (Income Tax) calculation base the amounts contributed up to the limit of 12% of your taxable annual gross income.

Carolina adds that pension funds are commonly used within a succession planning work because they do not enter into probate, being quickly transferred to the heirs after the death of the holder.

“Pension funds continue to have a great advantage in terms of taxes and succession”, says Carolina, who also recalls that pension funds offer a very wide range of investment strategies with different levels of risk, giving investors the freedom to choose the one that best matches your profile.

The manager says that a point of attention concerns the fund administration fees, which can reach abusive levels, of up to 3% per year, requiring a more careful analysis of the strategies.

Two options can act in a complementary way in the investor’s portfolio, says Unicred specialist

“Renda+ is a very interesting novelty, especially for the public who did not have access to pension plans”, says Rafael Sueishi, head of fixed income at the Manchester investment advisory office.

The focus of the titles, adds Sueishi, tends to be the lower-income population, which, in many cases, has only the INSS to sustain itself during retirement. Pension plans, on the other hand, end up being a more interesting option for a higher-income public, with higher minimum contributions compared to government bonds and with the ease of transferring assets in the succession process, says the expert.

Patrícia, from Unicred, believes that the two alternatives can work in a complementary way in the investor’s portfolio.

She claims that, despite the positive points, public bonds aimed at retirement have a payment period stipulated in 20 years, with the flow interval eventually being insufficient to cover the entire period of the investor’s retirement.

In this sense, a pension plan that offers a lifetime income to the beneficiary can mitigate the risk, says Patrícia. “Within pension and succession planning, I see public and private pensions, and now Treasury bonds, as complementary.”