The Superintendency of Pensions (SP) reported that from July 1 and until next September 30, pensions for programmed retirement and temporary income to which the amount recalculation corresponds during the period, will receive an increase in value between 20% and 30%.
The above, according to the SP, is explained by the increase experienced in the spread of corporate bonds (debt securities of national companies) that impact the calculation of the Technical Interest Rate of Programmed Withdrawal (Titrp).
This situation, added the superintendency, is due to the high level of uncertainty in the local capital market, due to the economic crisis caused by the Covid-19 pandemic. Thus, for the July-September quarter of 2020, the Titrp increased to 4.32% from 3.5% in the immediately previous quarter. In the third quarter of 2019, the Titrp was 2.38%.
According to the data of the superintendency, in the third quarter of 2020 a recalculation of pensions for programmed retirement and temporary income would correspond to some 65,000 people, regardless of whether it is the first recalculation or not.
To calculate a pension, in addition to the Titrp, the life expectancy of the member, the profitability of the pension fund or funds in which he maintains his account and the legal charges or beneficiaries of the member are considered.
The SP also emphasized that the current calculation and recalculation of pensions was prepared with data until June 30 of this year, following the current methodology, so that it has no relation whatsoever to the discussion of the constitutional reform project that allows members withdraw 10% of pension funds.
What is the Titrp?
The SP explained that the Programmed Withdrawal Technical Interest Rate (Titrp) is the discount rate used to calculate and recalculate programmed withdrawals and temporary income to be paid during a year, and determines the speed at which the balance of pensioners’ accounts.
This rate is applied to all pensioners, regardless of their age, sex, nationality and the amount of resources they have in their pension savings balance. Its objective is to reflect the expectations of future returns of the pension funds, since this balance will depend on the balance that pensioners by programmed retirement will have available.
Performing a correct calculation of the Titrp is essential, according to the SP, since it allows the affiliate pensioner by programmed withdrawal to exhaust their resources at an adequate speed. This is important, because a higher Titrp implies a higher monthly amount of pensions, and this results in a more rapid decrease in the pension savings balance available to finance their pensions in the future.
The current methodology to calculate the Titrp corresponds to weighing 80% an equivalent rate and 20% the profitability of the pension funds C, D and E in the last 10 years. This methodology is established in a joint Supreme Decree of the Ministries of Labor and Social Security, and of Finance.
The equivalent rate is that derived from an interest rate vector that results from adding to a temporary structure of real interest rates, called the “Zero Real Curve”, an excess return over the risk-free return. For profitability purposes, the return of the funds is considered as the annual average trend of the last 10 years. The weights for funds C, D and E are 20%, 60% and 20%, respectively.
According to current legislation, next October the Titrp will be updated to calculate and recalculate pensions in the fourth quarter of the year, the Superintendency of Pensions concluded.
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