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Mecanismos de Fomento para a Previdncia Complementar
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High Earners (Executives, Investment Bankers, etc.) Do Not Value Tax Deduction ... We Need Efforts in Education and Communication to Change Culture ... – PowerPoint PPT presentation
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Title: Mecanismos de Fomento para a Previdncia Complementar
1
Mecanismos de Fomento para a Previdência
Complementar
- Alex Landsman
- William M. Mercer
- November 21, 2000
2
Major Issues
- Tax and Legal Issues
- Social, Economic and Cultural Challenges
- Market Barriers
- Logistical Problems
3
(No Transcript)
4
Tax and Legal Issues
- Ideal Tax Treatment
- Employer Contribution - Within Limits
- Tax deductible to Employer
- Not Taxable to Employee
- Not Subject to Social Charges
- Employee Contribution - Within Limits
- Not Taxable to Employee
- Not Subject to Social Charges
5
Tax and Legal Issues (cont.)
- Ideal Tax Treatment (cont.)
- Asset During Accumulation
- Not Taxable to Employer
- Not Taxable to Employee
- Benefit Paid
- Non Taxable to Employee
6
Tax and Legal Issues (cont.)
- Ideal Tax Treatment is Not Common
- Generally There Is One Point of Taxation
- In the US usually when Benefit Paid
- Some Exceptions
- Employee Contribution to Defined Benefit (DB) and
After - Tax Contribution to Defined Contribution
(DC) Plans - Roth IRA
7
Tax and Legal Issues (cont.)
- Tax Rate
- Ordinary Income
- Capital Gain
- Dividend
- Limits
- Employer 20 of Compensation
- Employee 12 of Compensation
8
Tax and Legal Issues (cont.)
- Treatment of Superávit
- Mandated Benefit Increases
- Low Flexibility for Alternative Use
- Post-Retirement Medical
- Window Benefits
9
Social, Economic and Cultural Challenges
- Low Coverage
- US - 61.5 million
- UK ? 17 million
- Brazil ? 1.6 millions
- High Social Charges
- High Benefits from INSS
- High Cost - Mandated Adjustment for Inflation
- No or Low Union Pressure
- Significant Informal Economy
10
Workers in the Formal Economy as of the Total
Workforce ( Annual Average )
Average Jan - Apr 1999
11
Target EU Wide Pension Pay-Out in 2020
2020 Target
Source Pragma Consulting
12
Social, Economic and Cultural Challenges (cont.)
- Low Value Assign to Pension Plan
- Significant Number of Employees Prefer Cash
- Situation Is Gradually Improving
- Bad past experience with montepios
- High Earners (Executives, Investment Bankers,
etc.) Do Not Value Tax Deduction - Low Highest Individual Tax Rate - 27.5
13
Social, Economic and Cultural Challenges (cont.)
- We Need Efforts in Education and Communication to
Change Culture - Significantly Underfunded Public Plans
14
Market Barriers
- Limited Investment Options
- Fixed Income - Short -Term Only
- Equities - Highly Volatile
- Real Estate
- Foreign Investment not Permitted
- In the US in addition
- International Equities and FI, Venture Capital,
Hedge Funds, Long-Term FI, etc.
15
Market Barriers (cont.)
- High Cost of Investment Management
- Resolution 2720 - Costly Reporting and Disclosure
Requirements - Few Products Available
- Insurance Market Is not Developed
- Corporate Governance
16
Logistical Problems
- Not Enough Pension Professionals
- Development of Actuaries
- Education of Current and Potential Plan Sponsors
- Products
- Financial Markets
- Risk/Rewards
- We Need More Cooperation Between Business and
Academics
17
Logistical Problems (cont.)
- Relatively Simple Plan Design
- Generally DB or DC
- Few Hybrid Plans
- Few DC Plans with Investment Choices
- Study Regarding Retirement Needs Should be
Performed. - In the US Replacement Ratio Generally Considered
to be 60 - 80 Depending on Income.
18
Public pension plan maximum replacement rates
and Pension Assets as a of GDP in 1996
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