What is the return on private pensions?

Find out how private pension income works!

The return on private pension plans is something that raises several doubts for those considering investing in this financial product.

After all, it could be the difference between retiring early and achieving financial freedom.

First of all, it is important to remember that we are talking about a long-term investment. In other words, although the return is important, this should not be the only factor to be taken into account.

But how does private pension income work? And is this a good option for you to have more money in your retirement?

To understand more about the subject, continue reading.

What is private pension?

Private pension is a retirement that is not linked to the National Social Security Institute (INSS).

In other words, it works as a complementary option to public social security.

However, this does not mean that this type of investment does not follow all the rules established by the government, as we are talking about something that is fully regulated by Superintendence of Private Insurance (Susep).

There are two types of private pension plans: the Free Benefit Generating Plan (PGBL) and the Free Benefit Generating Life Plan (VGBL).

The main difference between them is linked to the way Income Tax (IR) is taxed.

The PGBL is recommended for clients with taxable income and who declare Income Tax on the full form.

The VGBL is recommended for those who make a summarized declaration.

How does private pension income work?

The income from private pension plans changes depending on the modality chosen.

Therefore, there is no way to say exactly how much private pension yields, because as with other types of investments, in addition to the chosen modality, it is important to take some factors into account.

The first is the amount contributed over the years. Obviously, the more you invest, the more your money will yield.

This means that if you really want to obtain good returns, you need to organize yourself now, as this way, you will have more advantageous results in the future.

The second factor is the return on investments. Whenever you sign up for a pension plan, you need to choose an investment fund.

The third and fourth factors that must be taken into account are fees and taxes, as they can compromise your income.

Therefore, before signing up for a plan, it is important to ask the institution about the fees charged and the amounts of each one.

What are the fees charged on private pension plans?

As we said, rates impact income.

The good news is that some fees are not present in all retirement plans.

In other words, some of them can be avoided.

Therefore, keep an eye on each of the plans, so that you can minimize costs.

In any case, it is important to know what fees may be charged:

Administration fee

It is the amount charged on the amount invested.

It is charged annually and is used to cover the costs of managing the money invested in the fund.

This fee is charged by all funds. However, some of them charge a fee that is much higher than the market average.

Loading rate

Also known as the entry fee, it is deducted from the contribution amounts to your pension plan.

If the loading rate is 1%, for example, this means that for every R$ 200 invested, R$ 198 will be allocated to the investment. The other R$ 2 will be used to cover the application costs.

Exit fee

The output rate is similar to the charging rate.

But in this case, the discount is made on the redemption value or income.

Since most funds do not charge this fee, it is best not to hire those that still charge the exit fee.

Taxes

You already know that taxes are present in private pension plans.

But after all, how do they impact your income?

Income Tax charges vary depending on the tax regime chosen. See the options:

Progressive table

This taxation regime follows the same table that applies to salaries and other taxable income. 

In other words, the tax is charged according to the redemption value or income received.

This means that the higher the value, the more tax will be paid.

Regressive table

This taxation regime encourages long-term investment.

This means that the longer the investment period, the lower the amount paid in percentages.

See the relationship between the investment time and the tax rate charged:

As you can see, tax planning needs to be analyzed. After all, depending on the case, a good part of the profitability can be eroded by Income Tax.

Is private pension worth it?

Despite the fees charged and the Income Tax, we can say that private pension plans are worth it!

After all, we are talking about a long-term investment. This means that compound interest can work in your favor if you really plan ahead.

Do you want to retire early or not, have another source of income besides your INSS pension? Or do you want to save money for your children's college education?

Of course, to increase your earnings, the ideal is to diversify your assets, that is, invest in other types of investments.

Conclusion

Having a private pension plan is a benefit that will bring more security to you and your family in the future!

Therefore, if you really think long term, we recommend private pension plans!