Discover some important concepts about Private Pensions and see some tips to start investing in yours
Thinking about retirement is associated only with old age, but many young people forget that in order to achieve it, you have to think about it from a young age. With the new INSS rules, many people have opted for private pensions, which have become a much more interesting and complementary option to the INSS.
Through regular contributions over time, individuals can accumulate a wealth that will be used to guarantee their financial security after their working life has ended.
In addition, private pensions can also be used for other purposes, such as succession planning and family protection.
In a nutshell, private pension schemes work by setting up an investment fund, in which participants make periodic or one-off contributions, which are invested in various types of financial assets.
Over time, these resources are monetised and accumulate, forming a reserve that will be used to pay benefits in the future, such as retirement or partial or total redemption of the amount invested.
Among the main advantages of private pensions are the possibility of long-term financial planning, the flexibility to choose plans and contributions according to the investor's profile, the possibility of income tax deduction (in the case of PGBL) and protection against the risks of longevity and inflation.
Read on to find out more about private pensions and the models available so you know exactly where to invest your money to guarantee your future.
What is a private pension?
Private pension schemes are nothing more than a supplementary pension scheme to the pension scheme already offered by the Brazilian government (INSS). In simple terms, it's a financial investment in which you decide how much you want to invest each month/year, for how long and how long you want to withdraw it.
With the uncertainties hanging over the current public pension model in Brazil, interest in private pensions has been growing in recent years.
What types of private pensions are available?
There are currently two types of private pension scheme: PGBL and VGBL. The main difference between the two types of pension scheme is how they are taxed. Below we explain the difference between them:
- PGBL: Free Benefit Generator Plan - this is the type of private pension scheme best suited to those who file their income tax returns in full, i.e. people who have dependents, large health and education expenses and more than one source of income. Those who take out a PGBL can deduct up to 12% from their taxable income.
- VGBL: Vida Gerador de Benefício Livre - this is the type of private pension scheme best suited to those who file their income tax returns in a simplified manner. Unlike the PGBL, the VGBL does not guarantee income tax deductions, as it is only taxed on income, so the incidence of tax tends to be lower. It is also the most suitable for those who wish to invest more than 12% of their income in Private Pensions.
Current taxation
As well as choosing between PGBL and VGBL, you also have to choose the taxation system. These are: progressive or regressive.
- Progressive: In this type of taxation, tax is levied in two stages: in the first stage 15% is withheld at source from the amount redeemed, regardless of the amount (it can be offset on the tax return). In the second stage, tax is levied in the same way as on salaries - from 0% to 27.5%.
- Regressive: In the regressive taxation model, income tax rates decrease over time (as the name suggests). In this case, the rate starts at 35% for redemptions within 2 years of starting to contribute to the pension scheme, up to 10% when the redemption is made after 10 years of contributions. This type of taxation is the most recommended when you want to keep your private pension investments for the long term.
Redemption methods
In general, there are three forms of redemption:
- Full redemption: the taxpayer can redeem the full amount of their investment;
- Temporary monthly redemption: the taxpayer chooses to receive the value of the investment on a monthly basis, with a start and end date;
- Monthly redemption for life: the taxpayer chooses to receive a lump sum until the date of death.
It should be noted that there is the possibility that the investor can redeem the balance early. However, it should be borne in mind that redeeming the amount earlier than planned could result in higher income tax charges on the investment, which could jeopardise the return on the investment. Each contract defines its own grace period for redemption, but in general the stipulated period is 60 days.
Where can I take out a private pension plan?
There is a wide range of private pension plans on offer in Brazil. Now that you know how private pensions work in general, all you have to do is choose the plan that best suits your objectives. Some of the companies offering private pension plans are listed below:
- XP Investments
- Bradesco Insurance
- Itaú Bank
- Bank of Brazil
- Porto Seguro
- Caixa Seguridade
- BTG Pactual
Read also: How to get your Emergency Reserve
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