Based on the ninth edition of a research study into global retirement trends, commissioned by HSBC, over half (59 percent) of Brazilians think their financial preparations for a comfortable retirement are inadequate: 19 percent are not preparing at all, while 41 percent are not doing enough.
Brazilians understand the importance of preparing for retirement from early on in life – on average, they see the age of 33 as the latest by which people can start planning financially and still expect to maintain their standard of living in retirement.
The findings show that saving (putting money aside for the future) and financial planning (evaluating the current situation, identifying future goals and taking action to achieve them) start at varying and different ages. On average worldwide, retirement saving starts four years before planning for retirement starts, yet in Brazil both retirement saving and financial planning start at similar ages – typically 25 and 26. Although this is earlier than most other countries surveyed, the average figure hides the fact that 64 percent of Brazilian respondents have never saved for retirement, including 69 percent of 45- to 54-year-olds.
One of the obstacles to retirement saving, according to the research, is the tendency to focus on the short term: immediate savings needs are more tangible and therefore may be given a higher priority than far-off goals like retirement. When asked to choose whether they would save towards a holiday or retirement, if they could only afford to save for one in a single year, Brazilians were more likely to choose a holiday, with 49 percent choosing this option compared with 43 percent choosing to save for retirement. This suggests that for many, short-term financial needs take precedent over longer-term financial priorities. In addition, Brazilians are willing to dig into their retirement savings as a means of dealing financially with an unforeseen crisis. 38 percent would look to their retirement savings to get through serious financial hardship. Alternatively, 29 percent would use other savings, and 30 percent say they would look for better-paid work. Taken together, this means that not only does putting shorter term savings goals first act to reduce contributions to retirement savings, the readiness to draw on long-term savings in an unexpected crisis will also act to lower the value of retirement savings for some Brazilians.
Of Brazilians have never saved for retirement
On the other hand, there are many different reasons why people begin to save for retirement, though fear of financial hardship in retirement is by far the most common motivator, chosen by nearly half (45 percent) of research respondents. More positive developments such as starting work (seven percent), a promotion (nine percent) or getting out of debt (11 percent) are far less important triggers.
HSBC Fundo de Pensão believes that good communication with plan members is the key to promote financial education and retirement savings. Lectures are performed with plan members in order to explain the design of the plan, the different tax regimes and their impact over the accumulation period and upon retirement, as well as the characteristics of the investment portfolios available and the importance of starting early to save.
On the investment side, the year of 2013 was marked by a shift in investors’ expectations – interest rates ended 2012 at their lowest levels since 1995, and for the first time at one-digit levels, and the expectations were that the rates would remain at those levels or even drop and stabilise at lower levels. During 2013, the Brazilian Central Bank decided to raise interest rates, which reached two digits by the end of the year.
The fixed income market was one of the highlights of negative performance in the year, with the raise of both high nominal and real interest rates. The increase in pre-fixed rates in the US, along with the release of inflation figures in Brazil and the upward revision of expectations about the cycle of high interest rates in Brazil, determined that movement.
One of the obstacles to retirement saving, according to the research, is the tendency to focus on the short term
In the equities market, stock exchanges in developed countries have benefitted from the reduction in risk aversion, due to the improvement of the crisis in the eurozone and the dissemination of better than expected economic data, particularly in the US. Emerging countries, however, suffered from signs of a slowing Chinese economy, as well as the expected reduction in the purchase of bonds by the Fed and the consequent high rates of US government bonds (treasuries). Moreover, the domestic scenario remains complicated, with inflation being pressed, high interest rates and weak growth numbers, which keeps the drop bias in corporate profitability.
The shift in this expectation caught long-term investors by surprise. All these factors caused volatility in long-term investments, including those in retirement plans. In some cases, the instinctive reaction of retirement plan members was to withdraw their savings, losing the chance to recover the losses in the year, and giving up all the benefits they had in the past with very good investment performance.
All the volatility in Brazilian economy experienced in 2013 only reinforces the importance of starting to save early for retirement, as investment performance (good or poor) will smooth over time, in addition to the fact that capitalised financial resources make retirement cheaper to sustain.
Other important factors are the fees charged, usually reduced from investment returns, which affect accumulation for retirement. The lower the fees are, the less they will impact accumulation negatively. In a multi-sponsored pension fund, where costs are shared among all sponsors, the negative impact on investment returns is significantly reduced. Summing that to the fact that higher assets allow better negotiation of fees, multi-sponsored pension funds have turned out to be a very attractive vehicle to save for retirement.
“At HSBC, we help people to plan financially for their future, both to realise their dreams and to help them protect against the bad times which sometimes threaten. We believe it’s important to understand our customers’ hopes and fears, and to provide them with options to develop effective financial plans for their future,” says Alfredo Lalia Neto, Chairman of the Board of HSBC Fundo de Pensão.
Marcelo Teixeira, HSBC Group Head of Insurance, says: “Life happens – we have families, our children require education, we have accidents, we accumulate wealth and we grow older. Our clients are individuals and businesses and we work very hard to identify and meet their needs through life, pension, investment and protection products.”
Founded 35 years ago, HSBC has assets of BRL 5.6bn and leads multi-employer funds with a 33 percent market participation rate. Its nearest competitor is far behind at 16 percent. HSBC has 200 sponsoring companies with their own pension plans, more than 80,000 active participants and in the region of about 9,000 retirees.
[W]e help people to plan financially for their future, both to realise their dreams and to help them protect against the bad times
HSBC gives its clients the opportunity to participate in its multi-sponsored pension fund, which is managed as a non-profit private pension closed entity. This allows for the joint management of separate private pension plans so that the features of every specific benefits plan are retained and remain appropriate to each company’s individual needs. Each plan has its own actuarial appraisal, enabling the identification of specific costs based on the profile of the staff that join the plan, and the benefits selected by the company.
The HSBC Multi-sponsored Pension Fund was the first independent fund of this type to be launched in Brazil, having been approved in December 1979 when it was first regulated and inspected by the Superintendência Nacional de Previdência Complementar. The fund made it unnecessary to invest in own administrative structures and corporate pension funds because the structure already exists, and is shared among sponsors of the pension fund.
HSBC’s plans are all independent. The results are individualised and all costs are plan-specific. As the fund reaches self-sustainability, costs are reduced for the company and all its plan members, allowing them to concentrate on their core business. The internal structure of the fund operates so as to enable the total participation of both sponsors and plan members within a policy of absolute transparency. This works through a mechanism known as the ‘three powers’, where the sponsor has the power to make decisions, the administrator is in charge of managing the fund and the plan member inspects and supervises operations.
“For HSBC, it’s not enough to offer the best corporate pension plans,” says Neto. “We also insist on [putting in place] specialised consultancy services to guide customers in their choice of the most appropriate products for their company. Our team is ready to assist through all the processes involved in the development, implantation and appraisal of our corporate pension plans. The solutions we offer are capable of meeting all human resource needs, in accordance with the company’s financial means. Many companies and foundations have chosen multi-sponsored funds, willing to avoid the high cost of maintaining a proper structure. That’s because the administration of assets and liabilities requires professionals fully dedicated to managing the day-to-day of a pension plan, which also involves legal advice, welfare, administrative, technological and actuarial work.”
There are many advantages to a company using HSBC’s Multi-sponsored Fund as compared with funds from competitors. The fund is Brazil’s oldest, and HSBC’s 35 years of experience administrating corporate plans is unmatched in the region. Customers can expect highly customised plans with relation to each individual company, complete with permanent assistance and specialised technical consultants at the ready.
HSBC Fundos de Pensão is a member of the Associação Brasileira das Entidades Fechadas de Previdência Complementar. It has also been selected by Associação Nacional dos Contabilistas das Entidades de Previdência as the being the best multi-sponsored pension fund in Brazil.
The fund’s administrative services are provided by HSBC Administração de Serviços para Fundos de Pensão (Brasil), while assets are managed by HSBC Global Asset Management, one of the largest managers of third party assets in Brazil.