Brazil permits redemption of open-end pension plans to guarantee credit transactions
New law will facilitate access to credit and should reduce defaults among financial institutions
Sanctioned by Brazil’s President and published on August 24, 2023, in the Official Federal Gazette, Law No. 14,652/23 (formerly Bill No. 2,250/2023) permits the redemption of open-end private pension plans as a guarantee for credit transactions.
The new law also covers the use of reserves in personal insurance, the Individual Programmed Retirement Fund (Fapi) and capitalization bonds (supplementary investments).
Law No. 14,652/2023 permits such guarantees even in cases where the financial institution is from the same economic group as the source of the supplementary investments. Furthermore, it states that neither financial institutions nor supplementary investment companies may create obstacles to using pension reserves to guarantee a given credit payment.
On a grander scale, Law No. 14,652/2023 will provide guarantees with greater liquidity due to the high probability of payment. Consequently, it will improve interest rates in credit transactions in general and loan conditions.
Although the law still requires further regulation from the Brazilian Monetary Council (CMN) and the Brazilian Private Insurance Council (CNSP), the effects of Law No. 14,652/2023 are set to lead to new movements and developments in the insurance sector.