Private pension giants lose minimum earnings in fixed income

Private pension is the path that millions of investors seek to supplement their income and guarantee their wealth in the future. But some of the largest funds of this type of investment are failing to deliver to clients an income at least equal to the CDI, a basic reference for fixed income products, precisely those most sought after by Brazilians.

A staggering 96% of the assets invested in Brazil in fixed income pension funds have yielded below 100% of the CDI for more than ten years, according to a study carried out by the analysis house Spiti. That’s R$ 306.9 billion that are not even managing to keep up with the basic interest rate of the Brazilian economy over an entire decade. What should the applicator do in this case? See below.

Purpose of private pension

Private pension funds aim to help investors build wealth in the future. Thus, they are products with long-term return goals.

This means that these products can even have poor performances and even negative fluctuations in short periods. But after a longer period of time, ten years or more, they have the role of delivering to the investor an income that protects the patrimony from the loss of purchasing power.

It is to encourage the investor to keep the money in these plans that the rules for private pension funds offer advantages, such as lower tax rates.

The managers of pension funds therefore have time in their favor and lower tax rates to deliver higher earnings to investors than those offered by other funds that are not private pension funds.

Private pension giants lose CDI

But this is not the final result for 179 fixed income private pension funds, with more than 10 years, out of a total of 198 that are available in PGBL and VGBL (understand the difference between the two).

The study of the analysis house Spit shows that BRL 306.9 billion, out of a total equity of BRL 319.6 billion, does not yield even 100% of the CDI in more than a decade. That is, the return does not even tie with the basic interest rates of the Brazilian economy.

The survey considered only open private pension funds. Master and zero-fee funds were disregarded, as these products do not receive a direct contribution from the plans.

Only funds with 10 years or more were considered because this is the minimum horizon recommended for the investor to take advantage of the tax benefit of the regressive Income Tax and, at the same time, it is enough time to evaluate the performance of a product.

A good pension portfolio is a diversified portfolio, which may even lag behind the CDI for some periods. The problem is seeing people’s pensions invested in funds that, after more than a decade, do not even deliver the benchmark for conservative investments.
Luciana Seabra, founder and CEO of Spit

Why compare with CDI?

O CDI is the main reference for more traditional fixed-income investments, that is, those that present the lowest market risks because they invest mainly in floating-rate government bonds.

And fixed income is the investment category most used by Brazilians. Pension funds currently total R$ 1.1 trillion in equity, according to data from the Brazilian Association of Financial and Capital Market Entities (Anbima). Of this total, R$ 878 billion are in fixed income funds, that is, 80.6% of the pie.

reasons for losses

According to market professionals, the mediocre performance of the largest fixed-income pension funds has to do with a combination of high management fees and a drop in the basic interest rate.

When the basic interest rate falls, as happened in Brazil between 2016 and 2020 โ€” and the Selic dropped from 14.25% to 2%โ€”, the administration fee began to erode, proportionally, more and more of the gross income from the applications.

The newest funds, launched by independent managers and even by banks, practice lower administration fees. Among old funds, some fees have been cut over time, but they are still high.

And, over time, the punishment is greater, because the pie grows more slowly.

A 2% administration fee when the CDI was 14% had a much lower weight than today, when the CDI is 2% per year.
Carlos Castro, Financial Planner at Planor

What the insurers say

Sought after, Bradesco said that over time it has been adjusting its product portfolio and the management fees of its investment funds in order to better meet customer demands, in a move to adapt to the market.

“It is worth mentioning that the decision to redeem or transfer funds from funds linked to pension plans can have a financial impact on the participant, given that the old plans have pension characteristics of conversion into income that are no longer practiced by the market”, said the bank in note to UOL.

THE BrasilPrev said that it has emphasized to clients the importance of diversifying investments and intensified the launch of products and partnerships with independent managers in addition to the existing portfolio.

Caixa did not respond until the publication of this article.

According to the National Federation of Private Pensions and Life (FenaPrevi), which represents insurance companies in this market, the decision to allocate resources to low volatility products is often part of the clients’ own strategy to maintain a balanced portfolio of products.

“There is the possibility of mobility between products, via portability, so that customers seek the best investment throughout their life cycle, also suited to their appetite for risk or more conservative profile”, said the entity in a note to the UOL.

How to evaluate the fund

The investor who has his pension applied then needs to closely monitor the performance of the funds that are in his plan.

The managers themselves present in their reports graphs that show the performance of the funds with the CDI.

In addition, the person can use search engines that make these comparisons, such as the one available at the Superintendence of Private Insurance (Susep) and other platforms.

Portability is an alternative

In the same way that someone can switch a cell phone line from one carrier to another, it is possible to take a pension plan from one insurer to another.

But this needs to be done carefully so that the investor does not leave part of the income along the way when looking for a pension fund with lower management fees and a better income history.

It is necessary to see, for example, the actuarial table, used to estimate the life expectancy of a certain group of people and, from that, calculate the values โ€‹โ€‹of benefits in the future. The old plans have this more advantageous reference.

In addition, it is necessary to check that the portability will not represent a cost in the loading fee or in the tax rate. See below for some guidelines from market professionals.

Changes that can be made

The investor can make two types of change to find a better pension product using portability.

  1. Within the plan itself: A private pension plan is made up of investments in several funds that the participant can change and find the one that makes the most sense. There are several fixed income products on the market, offered by different managers. If two of them have the same income history, it’s worth comparing management fees.
  2. Transfer to another plan: It is possible to request the portability of the entire pension plan, transferring the resources to another insurer.

Beware of company-sponsored plans

The executive director of the investment comparison platform Yubb, Bernardo Pascovich, highlights that those who have a private pension in partnership with the company where they work should consider in the account whether the company also contributes with a monthly deposit.

“For these cases, I do not recommend portability because the company’s contribution ends up providing an income that will hardly be beaten by another plan without company sponsorship”, says Pascovich.