Risks and Preventive Measures for TFR in Mandatory Pension Funds

The Future of End-of-Service Treatment (TFR)

The future of the End-of-Service Treatment (TFR) has raised significant concerns among workers as the government contemplates a reform of the current system.
The proposed changes would mandate that new hires allocate approximately 25% of their TFR contributions to a pension fund.
This represents a major shift in how workers prepare for retirement.

For existing employees, a ‘silent consent’ mechanism could be introduced, wherein their TFR would be automatically transferred to pension funds unless they explicitly choose otherwise.
This initiative is part of broader reforms aimed at addressing the aging population and the increasing strain on the public pension system, ultimately seeking to ensure greater financial stability in the future.

Implications for Workers

But what does this mean for workers? Questions arise concerning the destination of their TFR funds.
Which pension fund will manage them, and what investment strategies will be employed? Without informed and conscious decision-making, savings may be directed toward less advantageous sectors, negatively impacting long-term returns.

Changes to TFR Management

The proposed reform could introduce significant changes in the management of TFR, specifically for new hires.
They would be required to direct about 25% of their TFR to a pension fund.
For current employees, the introduction of silent consent would facilitate automatic transfers, promoting retirement savings even among those who may not actively opt in.
However, this raises essential questions related to fund management and available investment options, which directly influence the final returns on accumulated savings.

Where Will Our TFR Go?

The critical issue remains that it is unclear where TFR will be allocated if transferring to pension funds becomes mandatory.
It can be assumed that existing rules for new hires will apply, including the silent consent mechanism.
Employees in the private sector currently decide within six months of hiring where their TFR goes; without explicit choice, it automatically flows into the pension fund outlined by their collective labor agreement.

Challenges of the Proposal

It is vital to highlight two significant challenges of this proposal.
If mandatory TFR transfers or the silent consent for previously hired workers are enacted, it is crucial to recognize the potential for these funds to lead to more conservative, and possibly less profitable, investment options.
As noted in previous analyses, these returns could fall significantly below the rate of TFR inflation if kept within the company.

Moreover, once workers opt into complementary pension schemes—whether actively or tacitly—this choice becomes irreversible.
While they may later switch to another fund, these decisions must be made with careful consideration to avoid long-term drawbacks.