PENSION REFORM AND DEVELOPMENTS IN LATIN AMERICA Session 1: Pension Industry Development in Brazil Rio de Janeiro-RJ, - PowerPoint PPT Presentation

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OECD/IOPS 2009 GLOBAL FORUM ON PRIVATE PENSIONS

PENSION REFORM AND DEVELOPMENTS IN LATIN AMERICA

Session 1: Pension Industry Development in Brazil

Rio de Janeiro-RJ, October 14, 2009

Summary

I – General Panorama

II – Government Action

III – Pension Funds Profile

IV – SPC: Framework and Attributions

V –Current Situation

VI – Challenges and Perspectives

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I. GENERAL PANORAMA OF BRAZIL

Prudent Fiscal Policy

Monetary Policy Control

(Oriented for 10 years)

Foreign Adjustments

(International Reserves S$ 220 bi)

Improvement of the Economic Framework

Inflation Control (4,36%a.a)

Reduction of the Exchange Rate Volatility

(1 US$ = R$ 1,75)

Virtuous Cycle

Investment in Physical and Human Infrastructure

Lower Interest Rates (8,75%a.a)

Improvement of Debt Profile

(R$ 1,5 Tri; duration: 3,5 years)

Primary Surplus (3%a.a)

BRAZIL: Moving Toward Sustainable Growth

Composition of Economic Policy Creates Protection From Foreign Shocks

C O N D I Ç Õ E S M A C R O E C O N Ô M I C A S

Economic Sustainable Growth (average: 4,5%a.a) and Improvement of Social Situation

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Public Net Debt / GDP*

Public Fiscal Result* ( 12 months)

Fonte: Banco Central do Brasil

Long Term Interest Rates *

Price Stability Commitment

Fonte: STN e BCB.

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Effects of the Crises in Brazil

2 Rating Agencies Award investment grade to Brazil in mid-2008

Highlights

Continuity of economic guidelines, based on inflation goals, floating exchange rate and primary surplus
Considerable reduction of external vulnerability
Improvement of debt profile

Credit (% GDP) and Default (% Total Credit)

GDP Growth

Fonte: Banco Central * Vencido há mais de 90 dias

Fonte: IBGE

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A quick look at Brazil

Why Brazil represents an opportunity ?

5) No geopolitical or religion problems

6) Low Institutional Risk

7) Numerous Energy Sources

8) Possibility of being a net exporter of petroleum in the near future (Pre-Salt)

1) Social Mobility

2) Strong Democracy

3) 5º largest population (200 millions); 5º largest area; 9º biggest GDP (US$ 1,6 trillions)

4) Only one language no minority group problems

A dynamic multicultural country

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Reduction of Social Inequalities

Improving Equality

Human Development Index

Fonte: PNAD-IBGE, FGV, (2009 )

Family Assistance Program

Fonte: PNUD (2009)

IDI has reached a high level of human development.
The Family Assistance Program successfully reaches the target public.
Poverty has been reduced in 1/3 of the country.
52% of the population represents the middle class

Fonte: IBGE

Fonte: MDS

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DEMOGRAPHIC TRANSITION

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II. GOVERNMENT ACTION

COMPLEMENTARY PENSIONBasic Characteristics - art. 202/CF-1988

Independent from the General Regime
Not mandatory affiliation and contractual nature
Reserve constitution (capitalization)
Regulated by Complementary Law
Transparency for participants
Autonomous in relation to the labor contract

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LEGAL ASPECTS OF THE GOVERNMENT’S ROLE

Formulate private pension policies as part of social and economic development.
Determine minimum standards of security in order to protect liquidity, solvency and actuarial and financial balance of benefit plans.
Supervises and apply penalties.
Ensure disclosure of benefit plans to the members and retirees.

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Legal Aspects – Principles

Estability of Rules
Long Term Policy
Specialized, Reliable Support Personnel
Larger capacity of supervision

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Government Action

MODERNIZATION AND APPROPRIATE LEGISLATION (LC 108 e 109/2001)
ON-STE AND OFF-SITE SUPERVISION (RBS)
NEW APPROACH TO TAXATION (laws 11.053/04 e 11.196/05)
GREATER TIMELY ANALYSIS OF PROCESS
INCENTIVES FOR PROFESSIONAL ASSOCIATIVE PENSIONS FUNDS
FINANCIAL EDUCATION
PREVIC FRAMEWORK (PLC nº 136/2009-SF)

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III. PENSION FUNDS PROFILE

PENSION FUNDS PROFILE

372 closed pension funds
2.491 sponsors/ 350 professional associative pension funds
1.037 benefit plans
R$ 460 billions in assets
6,8 millions of members and retirees
R$ 32,51 billions of pension benefits and R$ 26,04 billions contributions/year
Average Contribution: 7,1% (DB); 5,0% (DC e VC)
Administrative fees: 7,25% AND Investment administrative fees: 0,76%
Average Benefit: R$ 2.828,00 (retirement) e R$ 1.351,00 (pensions)
Accumulated Surplus: R$ 55 billions

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INVESTMENTS: R$ 460 BI (Jun-2009: US$ 263 bi)

Distribution of Pension Funds Investments

Real state

Operations with pension funds members

Variable Income

Fixed Income

2007 – R$ 436 BI : RF (61%); RV (34%); Imov (3%); e Oper.Partic. (2%)

2008 – R$ 416 BI: RF (66%); RV (28%); Imov (3%); e Oper.Partic. (3%)

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IV. SPC – FRAMEWORK

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SPC – Attributions

Authorization, Licensing, Incentive (prior approval of some SPC acts)
Supervison (act as a supervisory body of the sytem)
Legislation(propose rules and operate and regulate the CGPC decisions)
Registry ( keep registers of EFPC, CNPB, sponsors and managers)
CGPC(4 Party: regulation and judgments)

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V. CURRENT STAGE

Regulação

– GOVERNANCE – Resolution CGPC nº 13, 2004

– LICENSING – Resolution CGPC nº 08, 2004

– SOLVENCY RULES – Resolutions CGPC nºs 26/2008 (surplus/deficit); 28/2009 (accounting schedule/IAS 26); 18/2006 (technical parameters); 16/2006 (DB/DC/VC); 17/1996 (sponsor’s debt)

– INVESTMENTS – Resolution CMN nº 3792/2009 [quantitative limits (30): Government Bonds (100%); Banks (80%); Credit/Securitization (20%); RV (70%); abroad (10%); infrastructure (20%); Hedge Funds (10%); Real State (8%); sponsor(10%)]; Resolution CGPC nº 04/2002 (pricing TVM)

–PROTECTION TO THE PENSION FUNDS MEMBERS AND RETIREES – Resolution CGPC nºs 06/2003 (vesting; portability); 10/2004 (insurance DC); 12/2004 (employee transfer)

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Regulação (cont.)

–ADMINIATRATIVE COSTS– Resolution CGPC nº 29/2009

–REGISTRY– Resolution CGPC nº 14/2004

–DISCLOSURE– Resolution CGPC nº 23/2007 (disclosure/relatório de informações)

–FINANCIAL EDUCATION – Recommendation CGPC nº 01/2008

(ENEF/BRASIL: http://www.vidaedinheiro.gov.br)

–SUPERVISION – Recommendation nº 02/2009 (SBR); Instruction nº 26/2008 (Laundry money)

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Authorization and Licensing

- Prior electronic analysis

- Average Time: 22 DD

Graphic 9 – Authorization of new pension funds, benefit plans and enrollment contract (sponsor/professional associative pension funds) at SPC, in 2007, 2008 and sep/2009

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