Odebrecht Retirement Fund wants coverage for longevity risk

Odebrecht Retirement Fund is seeking to partner with an insurer to offer its members a guarantee that they will continue to receive benefits if they live longer than the average age projected by the actuarial life tables of the defined-contribution (DC) plans. In such cases, post-retirement insurance would be a complement paid to members when the funds accumulated in their account balance are exhausted, which should happen on average within 20 years from the start of payments. “When a member reaches the age of 85, we estimate that the money accumulated in the DC plan will run out. We want to offer an insurance policy that would protect members after they are 85, for as long as they live,” said the CEO of Odebrecht Retirement Fund, Sérgio Brinckmann.

The fund has been analyzing the product since 2015, when it approached Odebrecht’s brokerage and the sponsors, which would bear the costs of the product. At the time, the pension fund sought insurers that could implement the product. However, the Private Insurance Agency (SUSEP) recently announced a public consultation to regulate this type of coverage, which made the fund wait a little longer to move forward with the project.

At the time, Itaú, Icatu, Sulamérica and Ace were approached. “We will revise the model that we already have studied to decide whether it makes sense to keep or if we are going to suggest improvements, and then we will resume conversations with the insurers. We will ask three of them to present a proposal to see what the premium would be. The idea is to start conversations once again in 2019,” said the administrative officer of Odebrecht Retirement Fund, André Luis Suaide.

Less risk and more accumulation – Although this is not a product that transfers the risk from the fund to an insurer, what Odebrecht Retirement Fund seeks with this coverage is to eliminate for the members themselves the risk of surviving with their defined-contribution plan exhausted. “We want to offer this alternative of contracting an insurer because we are thinking of when members’ account balances run out,” said the investment officer of Odebrecht Retirement Fund, Gustavo Liberali.

For the product to be advantageous for members, the percentage accumulation in the defined-contribution plan must be higher than the average realized currently, explained André Suaide. According to him, members must make an effort to retire with funds corresponding to 70% of their salary. “Our idea is that there will be a factor for reducing members’ indemnity that is pegged to the percentage contribution in the last ten years, divided by 12,” he said.

Based on this calculation, the lower the member’s percentage contribution during their career, the lower their indemnity after retirement. “This can be seen as a penalty, but we see it as an incentive for people to increase their contribution to support the post-career phase of their life,” said Suaide. “We want to encourage people to pay the maximum contribution, which would be 12% of their salary,” he added, saying that the current average contribution paid by members of the defined-contribution plan is 8%.

Contracting – According to the executives of Odebrecht Retirement Fund, they want the product to be funded by the fund’s sponsors. If that plan is implemented, they expect members to migrate in mass to the insurance policy. Odebrecht Retirement Fund currently has 16,000 active members who are younger than 60. “If the product is not funded by the sponsor, each member would have to contract it voluntarily, which would take more time,” said Gustavo Liberali. According to André Suaide, offering this product is advantageous for the insurers, since it will guarantee payment of the premium for 20 years.