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

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

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

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  1. 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

  2. Summary I – General Panorama II – Government Action III – Pension Funds Profile IV – SPC: Framework and Attributions V –Current Situation VI – Challenges and Perspectives 2

  3. I. GENERAL PANORAMA OF BRAZIL

  4. 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 4

  5. Public Net Debt / GDP* Public Fiscal Result* ( 12 months) Fonte: Banco Central do Brasil C O N D I Ç Õ E S M A C R O E C O N Ô M I C A S Long Term Interest Rates * Price Stability Commitment Fonte: STN e BCB. 5

  6. 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 C O N D I Ç Õ E S M A C R O E C O N Ô M I C A S Credit (% GDP) and Default (% Total Credit) GDP Growth Fonte: Banco Central * Vencido há mais de 90 dias Fonte: IBGE 6

  7. 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 C O N D I Ç Õ E S M A C R O E C O N Ô M I C A S A dynamic multicultural country 7

  8. 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 C O N D I Ç Õ E S M A C R O E C O N Ô M I C A S Fonte: IBGE Fonte: MDS 8

  9. DEMOGRAPHIC TRANSITION 9

  10. II. GOVERNMENT ACTION

  11. 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 11

  12. 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. 12

  13. Legal Aspects – Principles • Estability of Rules • Long Term Policy • Specialized, Reliable Support Personnel • Larger capacity of supervision 13

  14. 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) 14

  15. III. PENSION FUNDS PROFILE

  16. 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 16

  17. 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%) 17

  18. IV. SPC – FRAMEWORK

  19. 19

  20. 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)

  21. 22

  22. V. CURRENT STAGE

  23. 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) 24

  24. 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) 25

  25. 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 26

  26. High Probability Low Impact High Probability High Impact Probability Low Probability Low Impact Low Probability HighImpact Impact Supervision (PAF): Risk Analysis in loco - PAF • Fatores de Riscos: • Déficit • Debt • Governance • Investiments • Actuarial statement • Complaints • Mitigation Factors: • Certification • Education • Risk Management electronic 27

  27. Supervision 28

  28. Supervision Off-site 29

  29. Profitability: +30% (2003-2008) OECD countries/2008: (-) 23% 1º Semestre 2009/Brasil: 10% 30

  30. Pension Funds Solvency SURPLUS – RULES: 125%; AT-2000; 5,00%a.a; s/debt BALANCE – RULES: 100%; AT-83; 6,00%a.a; CU (DB) DEFICIT – RULES: 90%; 02 ANOS (context); Cash flow BRAZIL – 126%:Coverage index of the actuarial liabilities– 2001/2008 31

  31. SPC GATEWAY (Dataprev) SAA - TI PORTAL SPCWEB CAND SICADI Accounts Statistics Population and Benefits CANDSPC Benefits: security, speed, transparency and data integration 33

  32. VI. Challenges and Perspectives

  33. Challenges and Perspectives (agenda) • RBS (TR WB/First) • Sponsorship Withdrawal / Mergers / Spin-offs / Acquisitions • Civil Servants’ Pension Fund (1992/2007) • Actuarial Parameters (Longevity and Interest Rate) • Reinsurance • PREVIC 35

  34. PREVIC – National Superintendence for Pension Funds • Law Project nº 136, 2009 • Complementary Law 109 enforcement (arts. 5º e 74) • Autarchic:Administrative and Financial Autonomy • Linked to the Ministry of Social Security • Headquarters in the Federal District • Self Budget (Self-financing:TAFIC – R$ 33 millions/year) • Performance Management Agreement (Previc-MPS) • Specialized Own personnel staff (240) • Framework • SPC/MPS - Policy Formulation on Private Pension • PREVIC - Supervision -> (i) Board of Directors (Superintendent+ 04 Directors) • (ii) Appeal Chamber for Pension Funds • Regulatory - CNPC (current CGPC) • Appeal Chamber for Pension Funds - CRPC 36

  35. Ricardo Pena National Secretary for Pension Funds e-mail : spc.gab@previdencia.gov.br http://www.previdencia.gov.br/conteudoDinamico.php?id=37 Address: Esplanada dos MinistériosBloco F, 6º. Andar – Brasília/DFPhone : (55 61) 2021-5260/5261 Fax : (55 61) 2021-5564/5726 37

  36. Activities Report http://www.previdencia.gov.br/arquivos/office/4_090325-165717-628.pdf 38

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