BRAZIL
Prepared by Icatu Seguros.I
SUMMARY
Social Security
Eligibility All gainfully employed persons.
Retirement Age Normal retirement: After 35M/30F years of contributions (long service). Old age retirement: 65M/60F minimum 180 monthly contributions. Special retirement: 15, 20 or 25 years of work, in hazardous occupations.
Contributions Normally, employer contributions are 20% of full payroll, plus 1% to 3%, depending on the economic activity, plus 12% on profits.
Employee contributions vary between 8% and 11% of salary, limited to a pre-established amount.
Retirement Benefits Between 70% and 100%, depending on type of retirement and duration of contributions.
Disability Benefits Waiting period 12 months, unless accident at work. Accident: 100% salary on date of accident.
Death Benefits 100% value of retirement benefit if death is due to a specified illness.
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Private Benefit Plans
Eligibility Normally all employees after a specified waiting period.
Retirement Age 65M/60F
Contributions Private plans are normally financed by both employee and employer contributions (percentage of salary).
Retirement Benefits Normally defined contribution plans. Benefit in addition to social security.
Disability Benefits In private retirement plans: 100% of the retirement benefits with service projected to normal retirement age.
Group Life policy: Lump sum permanent disability (partial or total). Death Benefits Widow’s Pension: 50% projected old age pension.
Orphan’s Pension: 10% pensionable salary up to age 18, often limited to 5 children (the age of majority was changed by the new Brazilian Civil Code).
Lump Sum Death: Usually a multiple of monthly salary (normally 24 or 36). Medical Benefits Frequently provided. The plans Health Maintenance Organisation and Preferred
Provider Organisation are available, as well as free choice plans.
Vesting Surrender value upon termination after 3 years of participation and according to specific provisions agreed upon with the company. The client defines the rules with the intention of attracting new talent and keeping the most qualified.
Taxation
Employer Contributions Contributions to Social Security are not deductible.
Contributions to Pension Plans are deductible up to 20% of full payroll. Employee Contributions Contributions to Social Security are not deductible.
Contributions to Pension Plans are deductible up to 12% of gross taxable income.
Benefits Taxable income.
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II
INTRODUCTION
Country Statistics
Population / growth rate* 202,758 562 (Dec. 2014 est.) / 5.9% (Since 2010) Age structure* 0-14 years: 15-24 years: 25-54 years: 55-64 years: 65 years and over:23.6% 16.8% 43.4% 83%
7.6% (2014 est.) GDP purchasing power parity*
Real growth rate* Agriculture* Industry* Services* USD 1.685 trillion (2013) 2.3% (2013 est.) 4.8% 21.1% 58.8% (2013 est.)
Unemployment rate* 6.8% (Dec. 2014 est.)
Inflation rate* 6.41% (2014 )
Annual Gross Salary Semi-professionals** Professionals** Management** Legal minimum wage
in BRL
General: 23,226 Skilled: 46,781 Junior: 76,484 Senior: 125,046 Lower: 195,541 Upper: 318,947 BRL 788 (2015 ) per month
Exchange rate on February 27, 2015 Currency: Brazilian Real
1 BRL = 0.3473 USD 1 BRL = 0.3100 EUR *Source: IBGE data (Brazilian Institute of Geography and Statistics)
**Source: Mercer’s International Geographic Salary Differentials, Edition 2015
Legislation and Insurance Market Update in Brief
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III
SOCIAL SECURITY
Background Information
Social security began in Brazil in 1919, when work accident insurance was established by government decree, providing workers with indemnities for physical injuries suffered while at work. In 1923, several retirement and pension funds were created independently by government-instituted nationwide entities, bringing together workers in the same trades.
The INSS (Instituto Nacional de Seguridade Social) covers state pensions, and the SUS (Sistema Único de Saúde), covers
medical assistance.
Eligibility
Participation in the INSS system is compulsory for all gainfully employed persons.
Contributions
Social Security is financed on a pay-as-you-go basis. The benefits offered by INSS are financed by employers and employees.
Employer contributions are 20% of full payroll, plus 1% to 3%, depending on the relevant economic activity, plus 12% on profits. Employee contributions vary between 8% and 11% of salary, limited to a pre-established amount.
Financial sector employers contribute 22.5% of payroll, plus 18% on profits. In addition, the employer pays 1% of salary to finance insurance for accidents at work. Contributions are calculated on the basis of the employee’s monthly salary; contribution salary is limited to 10 minimum monthly salaries.
Small companies pay lower contributions; they vary between 2.75 % and 7.83 % of the earnings which are declared on a monthly basis. The annual earnings of the last 12 months of the small company are also taken into consideration when paying the contributions.
Retirement Benefits
Retirement Age
There are three kinds of retirement:
• Normal retirement after long-term employment • Old age retirement after reaching a certain age
• Special retirement, granted to participants in hazardous occupations.
Normal retirement: M35/F30 years of contribution with a minimum of 180 monthly contributions (Long-Term Service Pension).
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Qualifying Conditions
Retirement pensions are paid when the stipulated age or length of service is attained, and the minimum contribution period has been reached (see table above).
Benefits
• The benefit salary is used for calculating the pension. The normal retirement pension is 70% of the benefit salary plus 1% of the benefit salary for each contribution year, up to a maximum benefit of 100% after 30 or more years. • The minimum benefit salary equals the minimum wage, whereas the maximum benefit salary equals eight times
the minimum wage.
• For the benefit calculation of the average earnings, 80% of the total number of contribution months is taken into consideration.
Disability Benefits
Qualifying Conditions
The following requirements apply to be eligible for total permanent disability:
• For those with a serious disability: males require 25 years of contributions and females require 20 years of contributions;
• For those with a moderate disability: males require 29 years of contributions and females require 24 years of contributions; and
• For those with a minor disability: males require 33 years of contributions and females require 28 years of contributions.
• Retirement is also possible for males aged 60 and females aged 55, regardless of the level of disability, with 15 years of contributions and proof of disability for the corresponding period.
Benefits
• Disability Pension Due to Illness or Accident at Work: Disability pension is payable in the event of permanent disability, regardless of whether partial or total. Payment is subject to a commission of physicians which must declare the person totally or partially disabled. In the event of accidental disability, the pension amounts to 100% of salary on the date of accident. For those reaching the current retirement age, the pension equals 70% of benefit salary plus 1% of the benefit salary for each 12 month period of contributions up to a maximum of 30%.
• If the insured needs permanent care, the value of the benefit is increased by 25%.
Death Benefits
Qualifying Conditions
The survivors' benefit is equal to the disability pension that would have been payable in case of disablement on the date of death, divided in equal parts between qualifying survivors, which include widow(er)s and dependent children under age 21 (no age limit if disabled). The family of the insured person must be registered with Social Security. If the family is not registered, dependency must be proven.
Benefits
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• The post-retirement benefits are calculated in the same way but based on the retirement benefits in the course of payment.
• The survivors' benefit is subject to a maximum of the maximum pensionable salary for employee contributions, which is BRL 4,663.75 per month, and a minimum of the minimum wage of BRL 788 per month.
• A lump sum funeral grant is paid to those earning up to three minimum salaries.
Sickness Benefits
Qualifying Conditions
Employees must have contributed for 12 months to be eligible for these benefits.
Benefits
Illness Allowance: Benefit begins on the 16th day of absence. This allowance is granted in the event of temporary disability and equals 91% of the Benefit Salary (see definition under Retirement Benefits).
Medical/Health Benefits
The SUS (Sistema Único de Saúde) offers medical assistance. Coverage includes medical care, hospitalisation (ward
level), hospital outpatient, accident, maternity and limited dental care. However, those making use of SUS benefits will encounter poor quality care, waiting lines for consultations and waiting lists for non-urgent surgery.
Insurance for occupational accidents is subject to an additional contribution. Its benefits cover medical,
pharmaceutical and clinical assistance, as well as professional rehabilitation and indemnification according to the degree of disability.
Work Injury Benefits
Qualifying Conditions
Employees must have contributed for 12 months to be eligible for these benefits.
Benefits
• In the event of death due to an occupational accident: 100% of the contribution salary on the day of the event or 100% of the disability retirement value.
• Illness Allowance due to Occupational Accident: Illness allowance is mandatory, and is available for persons who become temporarily unable to work due to an occupational accident or professional disease as a result of a specific occupation. Begins after the 16th day of severance, and equals 91% of the Benefit Salary in force on the day of the accident.
• There are no special provisions for the coverage of disability resulting from a work accident or occupational disease.
Unemployment Benefits
Qualifying Conditions
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Benefits
Unemployment insurance regulations were approved by the Brazilian Federal Government. Enlarging the potential benefits programme by 30%, the law aims to guarantee payment of 80% of salary received during the last 3 months of employment. This applies to 73% of beneficiaries, who are those with remuneration of up to 3 times the salary. The benefit is calculated on the basis of a table with several salary scales, each corresponding to a percentage of the last salary. The highest benefit is equivalent to the maximum benefit salary, but no benefit can be less than the minimum salary.
Other Benefits
Maternity Benefits
Maternity benefits consist of 100% of the employee’s salary from the day the employee is deemed unable to work by her doctor. Pregnant women are protected by labour legislation, and therefore cannot be dismissed without just cause during the pregnancy period and for 120 days (180 in the public sector) after giving birth.
Annual Bonus (13th Salary)
Payment of an amount which is equivalent to the higher monthly salary.
Termination Indemnity (FGTS)
It is obligatory for the employer to pay a contribution of 8% of each employee’s monthly salary to finance a termination indemnity which is a social security benefit.
The contributions are paid to a blocked account, administered by Caixa Econômica Federal. This account yields interest
and is adjusted according to the inflation index officially recognised by the government.
The employee is permitted to withdraw the balance in the FGTS account on retirement and in certain situations, such as to meet home mortgage payments. The employee who is dismissed without just cause is entitled to benefits adjusted according to the inflation index officially recognised by the government, plus a penalty in the event of serious diseases (cancer, Aids etc).
Additional Benefits
Apart from the above pensions, social security also provides for the following benefits, the costs of which are included in the total contribution:
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Taxation
Contributions
Both employer and employee contributions to INSS are considered 100% taxable income. However, employer contributions are not considered taxable income for employees.
Benefits
Social Security benefits are taxable to the recipient, except for benefits payable for occupational injury or illness, and certain other listed disabling illnesses.
FGTS withdrawals are not taxable.
Other Information
None.
Reciprocal Social Security Agreements
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IV
PRIVATE BENEFIT PLANS
Background Information
In Brazil, two main types of corporate pension vehicles are available for long-term savings: closed pension plans and open pension plans.
Closed pension plans can be managed in-house or be multi-sponsored. Since 2008, the regulator PREVIC has increasingly observed that there is a tendency to switch from in-house to multi-sponsored plans, and that 90% of the new plans created in closed entities would be managed on a multi-sponsored basis. The reasons given are: possible lower costs, outsourcing of liabilities and structures, modern governance structure, high-tech services, focus on core-business by the multi-sponsored entity, as well as flexibility of choice of asset management and investment profile. In 2010 PREVIC issued a market guide of best practices for pension funds, focusing on governance structure. Open pension plans can be either collective or individual, and may be operated by insurance companies, banks, or non-profit organisations. The most common open pension plans available are the Plano Gerador de Beneficios Livres
(PGBL) – a product similar to the US 401k plan, and the Vida Gerador de Beneficios Livres (VGBL), for employee’s
contribution, the choice being based on the individual income tax situation. The number of companies in the private sector with private employee benefit plans has grown rapidly in the last five years. The trend in plan design is to avoid direct integration with the Social Security Benefits in order to eliminate the possibility that, should the benefit provided by the government be reduced, the difference will be assumed by the company, increasing their costs. The main products offered for retirement and life insurance are described below.
The contribution for private pension plans usually varies between 50% and 100% for employers. Employee contributions are tax deductible up to 12% of gross monthly income of each person.
In-House Pension Plan – Closed Entity
Normally only medium to large companies manage their pension plan internally because of fixed costs for auditors, in-house management structure, etc. Due to legislation and regulation closed entities are less flexible than open ones. Any change such as implementing a new in-house plan or changing the rules and conditions of a pension plan must be formally approved by the regulator, which can take some time.
Managing an in-house pension plan gives a company the clear impression of being the owner and having total power over benefit decisions. Nevertheless, executives take full legal responsibility for the liabilities and the health of the plan, as it ultimately impacts on their private assets.
Companies choose the investment funds profile. It is also common to work with exclusive funds, since the total assets in the plan are normally high.
A few years ago a legal framework was put into place to allow migration from one plan to another. After leaving a company, participants have full disposition of the assets accumulated in their name. The following conditions apply: • Withdraw the reserves based on their own contribution and that of the company (company’s total available
amount depends on the vesting rules of the plan as defined by the company when the plan was implemented); • Keep the plan, in which case it will have to be fully financed by the participant, and it will not be possible to make
future withdrawals until retirement age is reached;
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Multi-sponsored Pension Plan – Closed Entity
The multi-sponsored pension plan is subject to the same legislation as well as regulatory and general conditions as the in-house pension plan. It is an entity created to manage the different plans by several companies, sharing fixed costs but keeping the sponsors’ plan and the individual structure totally separate. In addition, it offers a modern
governance structure, high-tech systems and special focus on participants and sponsor as a result of the entity’s core-business, normally originated by an insurance company. Based on it, it is normally a good solution for medium and big companies of limited size.
It is still not a very well-known solution in Brazil, and there are few providers in this market, showing huge growth potential, as certified by the regulator, mentioned above in “Background Information”.
Traditional Personal Pensions – Open Entity Plan
Traditional pension plans guarantee the investor a minimum rate of return and a lifetime income. Fees are relatively high, and there is limited flexibility for the investor.
PGBL Plans (Plano Gerador de Beneficios Livres) – Open Entity Plan
PGBL plans are Defined Contribution Plans (unit-linked product, similar to a 401(k) plan in the US). They are transferable and they have certain tax benefits for the investor. However, unlike traditional plans, PGBL plans offer the investor and the employer greater flexibility, as well as more responsibility and choice over investments and investment performance. PGBLs are similar to variable annuities and allow participants to invest in a selection of mutual funds except for international investments. Some of the allowed investments include fixed-income, equity and real estate. PGBL plans have been extremely successful, particularly among employers, who have seen these as either an attractive supplement or an alternative to defined benefit pension funds.
VGBL Plans (Vida Gerador de Beneficios Livres) –Linked to Open Entity Plan
VGBL plans combine life insurance with annuity payments upon retirement. This product allows customers to redeem some or the entire amount invested during their lifetime. It is also a unit-linked product. VGBL plans have grown rapidly in the last years and the market share at the end of 2009 was more than 30% of all retirement plans which are available in Brazil.
Eligibility
Normally all employees are eligible. Some plans require a minimum period of employment.
Contributions
Private plans are normally financed through both employee and employer contributions. The contribution is defined as a percentage of salary, which varies according to the benefit and title levels attending the company’s intention for retaining well-qualified and key people.
Retirement plans must be qualified under Brazilian law. They may be funded either through closed or open entities. Partial book reserves are permitted in the first case. Any reasonable actuarial method may be used. Benefits are separated into three types:
• Benefits in payment, which must be fully funded.
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Retirement Benefits
Retirement Age
Normal retirement: 65M/F (common practices) Early retirement: 60M/F (common practices)
Benefits
Few plans or none still work with defined benefit programmes in Brazil because of the impact of actuarial risks. In the typical defined contribution plan design the company usually contributes to the plan in addition to the employee. The match provided by the company ranges from 100% to 200% of employee contributions.
Vesting
A pension plan participant is entitled to the corresponding surrender value upon termination after 3 years of participation and according to specific provisions agreed on with the company. It will be defined by the company in accordance with the intention of keeping key employees and attracting important new ones.
Disability Benefits
Private retirement plans typically provide a total and permanent disability income benefit. Usually there is no waiting period for eligibility. The benefits are normally 100% of the retirement benefits with service projected to normal retirement age.
Lump sum permanent disability benefits (partial or total) are usually provided through group life plans.
Death Benefits
Private retirement plans generally provide for survivor’s income benefits:
• Widow’s Pension: 50% of the projected pensionable salary. There is no waiting period.
• Orphan’s Pension: Usually 10% of pensionable salary for each child up to age 18 for a maximum of 5 children. No waiting period.
Furthermore, group life benefits are commonly provided:
• Lump sum death benefits: Usually defined as a multiple of monthly salary (up to specified maximum, but normally 24 salaries).
Accidental death and dismemberment benefits are almost always included.
Sickness Benefits
It is common practice for employers to supplement the INSS short-term sickness benefit. Practice varies but would typically be to supplement up to 100% of salary during an initial period of three months after the first 15 days of absence, reducing to 75% for a further three-month period and thereafter to be decided on a case by case basis. These benefits are generally funded on a pay-as-you-go basis.
Medical/Health Benefits
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The private sector therefore consists of two systems, on the one hand there are private hospitals that depend on funding by SUS and provide care for rich customers, and on the other hand private hospitals exist which belong to private medical groups.
This situation has led companies to look for private supplements in one of the two basic forms given below.
Clinicas (HMO/PPO)
These are private medical groups which, in agreement with the employer, offer medical and hospital services to employees. The services provided are faster and by far superior in quality to those rendered by the official system. The assistance varies according to the employee’s status in the company. However, treatment is only offered through doctors and hospitals that are part of the group. The Clinicas system is without doubt the most popular with approx. 800 associations selling this form of supplementary health care.
PPO is mostly used for lower paid employees. About 35 million employees are covered under this system. About 80% of the cost is financed by employers.
Free Choice
These plans are offered by insurance companies and allow the insured to choose doctors, hospitals and laboratories freely. There are two kinds of plans: The individual plan, where an individual policy is issued to the insured, and the group plan. In the individual plan, the cost is a function of the insured person’s age.
In the group plan, a group policy is issued for the employees of a company. Its advantages are the waiver of a waiting period and cost reduction. This type of insurance has become increasingly popular and is presently used by executives and managers in a large number of companies. In this type of insurance the following principal coverages are offered: • Daily hospital charges
• Hospital expenses • Doctors’ fees
Minor surgery performed in outpatient clinics. The following complementary coverages are offered: • Medical appointments
• Laboratory examinations • Physiotherapy treatment • Childbirth
Expenses are reimbursed to the hospital if an agreement between the hospital and the insurance company exists or to the insured where no such agreement is in force.
Taxation
Premium Tax
There is no tax on Pension Plans.
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Employer Contributions
Contributions paid by an employer towards employee pension plans are deductible up to 20% of full payroll. Premiums to life and health insurance are not deductible.
Employee Contributions
Up to 12% of employee contributions are deductible from gross taxable income. Life and health insurance premiums are not deductible.
Benefits
Lump sum benefits such as for death or total permanent disability are tax-free, while lump sum retirement benefits are taxable. Pension payments are considered as salary and therefore are subject to taxation.
Tax Collection
Tax is deducted immediately from the source before benefit payment.
Double Taxation Agreements
Argentina, Austria, Belgium Canada, Chile, China, the Czech Republic, Denmark, Ecuador, Finland, France, Hungary, India, Israel, Italy, Japan, Korea (Republic), Luxembourg, Mexico, the Netherlands, Norway, Peru, the Philippines, Portugal, Russia, Slovakia, South Africa, Spain, Sweden, Trinidad & Tobacco, Turkey; Ukraine, Venezuela
Benefit Payments from Abroad
These can be received freely, subject to exchange regulations in force at the time.
Transfer of Accumulated Policy Reserves from Abroad
There is no provision in Brazilian legislation for this type of transaction.
Other Information
Annual Base Salary
Generally 13 times monthly salary.
