It’s easy to say ‘Save for the future’: Brazil’s pension challenge
Brazil's history of hyper-inflation has created a generation without long-term financial planning skills, says Alfredo Lalia
Brazil’s pension system is one of the most generous in the world – and with its ageing population, increasingly overburdened. Alfredo Lalia, CEO of HSBC Insurance Brazil, explains why Brazilians can find it hard to plan for retirement, and the reforms currently underway to combat the challenges Brazil faces.
World Finance: Retirement and pensions are an issue worldwide. And in Brazil, this is no exception; with recent HSBC Fundos de Pensão research showing that a great proportion of the country’s population are gravely underprepared. With me now is Alfredo Lalia from the fund to speak about the challenges the industry is facing.
Well Alfredo, Brazil’s pension system is well-known to be overburdened. But it also has some of the most generous pension rules in the world, so how does it stand today?
Alfredo Lalia: Yes, in fact Brazil is a developed country, with a very generous public pension offer. So we are at risk of having big growth in the ageing population, without them becoming rich, as has happened in developed countries.
So, it’s a challenge to solve from next year, and pension funds can solve a part of this gap.
World Finance: Now, at the start of this year, pension benefits were cut due to austerity measures. How has this impacted the industry, and the already overburdened population?
Alfredo Lalia: Reform has just started, and has impacted much more in the protection part of social security – not so much in the annuity or pension part. But we are analysing what can be the opportunity, and how to help build a sustainable pension system in Brazil.
World Finance: So how well covered are people in Brazil, and how is the industry structured?
Alfredo Lalia: In fact, Brazil works with the traditional three pillars of pension: the public sector, companies trying to help individuals, and individual savers.
So, public sector is as I told you, very generous. So people have the feeling that they are well covered.
But you know that with the ageing population, the changing demographics, and the reduction of active work to finance retirement, you need to trust more in the second or third pillar. And each individual should have his pension plan to have a good retirement future.
World Finance: Well according to recent research conducted by yourselves, 41 percent of the population think they’re inadequately prepared for a comfortable retirement. Why is this?
Alfredo Lalia: Well, I think it’s a challenge to work with consumption, and to save for the future.
So it’s easy to say that, ‘You know, you need to save for the future.’ But the day-by-day consumption fights against this need.
And financial planning is not so common in Brazil: Brazil has only had 20 years of a low inflation environment. So this generation is not used to thinking in the long term, because they’ve lived through a hyper-inflation period. It’s been very difficult to preview what will be the value of your money in one month – so planning for 20, 30 years is not so common.
So this is changing: you have a new generation, born in a low inflation environment. But financial planning is a key thing that we need to develop in Brazil.
World Finance: So what services does HSBC Fundos do Pensão offer to combat these challenges?
Alfredo Lalia: Providing this financial planning. We try to go individual by individual and help them to analyse that they are prepared or not. How they are investing, how they are funding their future life.
So we have specialist team to provide this service to help people to think about the future and decide what they need to do today to have a good retirement period.
World Finance: Well finally, looking towards the future now, and how do you envisage the Brazilian pension landscape evolving?
Alfredo Lalia: I think we are a young population yet so, with this financial planning, the population understand much more the pension system, and all the tax benefits that a pension plan has in Brazil.
I see a big role – the main industry has had growth in double digits in the last 15 years, and probably we will keep this path of growth. A good future.