Do You Know What Private Retirement Works and How Does It Work?

Uncomplicating private pension: understand how it works

The pension reform, through the new proposals of the president of Brazil, Michel Temer, left many people worried about the future. Having to work much longer to enjoy the benefit of retirement is the reason why there is a growing interest in knowing more about how private pension works.

Image of hourglass and money illustrating guide on how private pension works

Understanding in detail how private pension funds work is the first step in starting to invest.

The issue, however, still raises many doubts, especially if we take into consideration that the Brazilian, in general, is not very understood when it comes to financial education.

How does private providence work and what is its purpose?

How does private providence work and what is its purpose?

For those who do not know, private pensions do not have the sole purpose of serving as a complement to social security. Of the amount that has been accumulated, it may be used for other purposes. How to make a trip, buy a property, pay the tuition fee of a college for the child, among other possibilities. That means it’s a way of saving money for a long-term project.

Exactly because it is a type of application that must be carried out for years, it is hardly possible to withdraw money before the pre-established deadline. This is a way to educate the investor to prevent him from taking out any cash needs. But it is worth knowing that if you want to give up the plan, it is possible to redeem all the money invested.

+ How to make a private pension

What is private pension

What is private pension

In general, it is considered a separate retirement that is not related to the INSS (National Social Security Institute). It is supervised by the Superintendency of Private Insurance (Susep). The taxpayer can choose the amount with which to contribute and for how long. It is worth saying that, in the end, the amount you will receive will be proportional to the amount you contributed.

Forms of taxation

Forms of taxation

The regressive tax table is the one that allows you to withdraw the entire investment at one time. While the progressive table is one that allows the person to receive the amount in monthly installment. It is important to know this when trying to understand how private pension works.

Who chooses the downside, in most cases, is who wants to accumulate a considerable amount of value and make this type of investment for more than ten years. This table aims to encourage long-term applications. Thus, at the beginning the rate is 35% for the accumulated investments for two years. It reaches 10% for deposits held for at least ten years.

The progressive table is for those who do not want to accumulate equity, for whom the prospects are lower. Those who have a pension fund, for example, and do not intend to stay for many years in the same company, also opts for this form of taxation. Who recovers in advance what was invested, has a rate of 15%.

Types of private pension

Types of private pension

Generating Free Benefit Plan (PGBL) is more common for the upper classes, who have good financial returns. The money invested can be written off in the Income Tax. However, when the amount is withdrawn, the tax is also quite high, that is, proportional to what you have applied.

The Free Benefit Generating Life (VGBL) plan can not be deducted from the Income Tax. However, when you start to receive the amount invested, the tax applies to the extra value received, what the investment yielded.

In other words, if you invest $ 100,000 and the income at the end is an extra $ 30,000.00, the tax to be applied will be on that last value. This is the suggested plan option for those with low incomes.

In view of the above and to understand how the private pension fund works, note there. PGBL gives you the possibility to cut down what was invested in IR pension. However, VGBL does not offer this possibility, but it is more advantageous for those who make a simplified income statement.

Those who use the simple Income Tax return should not hire the PGBL. To know which type of pension benefits you the most, it is important to know the type of statement you send to the IRS.

Let’s suppose: if you deliver a complete statement of IR, with the PGBL you will pay less tax over time. However, afterwards, the tax occurs in the redemption of the amount invested in private pension, which can end up being more costly for those who invest.

To better understand the differences, it is also worth noting that in PGBL the tax is charged when you redeem the amount invested. While the VGBL tax falls upon profitability.



Continuing our Guide on how private pension works, let’s rates.

Private pension companies work with the following rates: charging (on each contribution), management (annual), exit (redemption).

Open and closed pension plans

Open and closed pension plans

You may have heard about these two terms and have doubts. It’s simple. The open plans are those offered by banks, insurance companies, fund managers, and fall into one of the modules we have seen previously: Free Benefit Generating Plan (PGBL) or Free Benefit Generating Life (VGBL).

Closed plans are pension funds. They are offered by some organizations to their employees. So, it’s like they act as sponsors.

In some cases, it also helps in retirement. They present benefits like when the company makes investments for employees, for example, contributing every month.

It is very common that each real invested by the employee, proportionally another real is invested by the organization where he works. Thus, the employee’s investment doubles.

In addition, there is no charge fee. But be aware of some concerns. Generally, there is a minimum time that the employee must be registered in the company so that he can be entitled to the amount invested by the company if he is disconnected from the company. When an employee leaves work in this organization, they may not receive anything.

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