FGTS: A Pillar of Social Protection in Brazil
Find out more about the Service Time Guarantee Fund and its benefits
The Service Time Guarantee Fund (FGTS) is one of the most important institutions in the context of Brazilian labor legislation. Created in 1966, the FGTS is a mechanism that aims to protect workers' rights and provide an economic safety net for those who contribute to the labor market.
The FGTS is a fund that functions as a type of compulsory savings for Brazilian workers. Employers are required to deposit an amount equivalent to 8% of the employee's salary monthly into an account linked to the FGTS, in addition to a fine of 40% on the amount deposited in the event of termination of the employment contract. This fund is a reserve that the worker can access in situations and circumstances predefined by law.
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Step by Step to obtain the FGTS value
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History
The FGTS was created in 1966, during the military regime, as part of the policies to modernize labor legislation. The intention was to create a system of protection for workers, allowing them access to financial resources in critical moments, such as job loss. Before the FGTS, there was no legal guarantee of depositing resources for workers, making them vulnerable to unemployment situations.
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Over the years, the FGTS has undergone several changes and improvements to its legislation. In 2001, Complementary Law No. 110/2001 established the social contribution of 10% on the FGTS balance, which is directed to the payment of labor and System S debts. This change aimed to improve the FGTS's ability to fulfill its protection purpose to workers.
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How the FGTS works
The basic functioning of the FGTS involves employers making monthly deposits on behalf of their employees. These deposits correspond to 8% of the worker's gross salary. For example, if an employee earns R$ 2,000 per month, their employer must deposit R$ 160 (8% of R$ 2,000) into their FGTS account each month of employment.
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Each worker is entitled to an account linked to the FGTS. This account is automatically opened by the employer when the employee starts working and is updated monthly with deposits made. The linked account is exclusive to each worker and is a type of forced savings.
Authorized Withdrawals
FGTS withdrawals are authorized in specific situations, in accordance with current legislation. Some of the main reasons that allow the FGTS to be withdrawn include unfair dismissal, which occurs when a worker is fired without just cause, he or she is entitled to withdraw the full FGTS balance. The case of termination by agreement between employer and employee is also on the list. Retirement also authorizes the withdrawal of the balance.
The fund can also be used as part of the payment when purchasing a property, as long as the worker meets certain requirements. After the worker's death, his heirs are entitled to the balance. And in cases of serious illnesses, the worker is authorized to withdraw the FGTS.
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Income
The money deposited in the FGTS account does not remain idle. It is monetarily adjusted and earns interest over time. Income is paid annually and is calculated based on the Reference Rate (TR) plus an interest rate.
In 2022, the FGTS income was calculated based on the Reference Rate (TR) and increased by 3% per year, which guarantees a return above inflation. This income is a way of valuing the balance accumulated in the FGTS account, helping workers to preserve the purchasing power of their funds over time.
FGTS Benefits
The FGTS provides several benefits for both workers and the Brazilian economy as a whole. Some of the main benefits include protection in the event of dismissal and encouragement to acquire a home, contributing to the financial stability of families.
In addition, of course, the FGTS protects the population's money while making it grow over time, through monetary correction and income. The service also contributes to the country's development. Part of the FGTS resources is directed to investments in housing and infrastructure, financing projects that create jobs and improve the population's quality of life.
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Reviews
Despite the benefits of the FGTS, the system is not free from challenges and criticisms. Some of the main issues include the fact that, historically, the FGTS has a lower profitability than other investments, such as savings. This means that workers' money may not grow as much as it could in more profitable investment alternatives.
The monetary correction of the FGTS by the Reference Rate (TR) has been the subject of controversy as it has been shown to be insufficient to maintain the purchasing power of workers' money, which has led to several legal actions seeking to review this calculation. In addition, as for many workers, the fund is the only way to save for retirement, some resources to guarantee a dignified retirement may be insufficient.
Reform Proposals
Due to the criticism and challenges faced by the FGTS, reform proposals have emerged to make the system more efficient and beneficial for workers. Improving profitability, through more efficient management of resources or diversification of investments, is one of the proposals, along with the expansion of withdrawal situations, making it more flexible.
The monetary correction made by the TR has been the subject of controversy; an alternative would be to link the correction to inflation rates that are more effective in preserving workers' purchasing power. Promoting financial education among workers is essential to ensure that the use of the fund is effective. This may include awareness campaigns on how to use the FGTS intelligently and plan for retirement.
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Conclusion
The Service Time Guarantee Fund offers a safety net in times of financial difficulty, encourages home ownership and contributes to the country's economic development. However, the system is not without challenges. The reform proposals aim to make the FGTS more efficient and beneficial for workers, ensuring its relevance in the future.
It is important that the government, employers and unions work together to find solutions that balance the interests of all parties involved. The FGTS will continue to play a fundamental role in the social and economic protection of Brazilian workers, as long as it is adapted to the needs of the constantly evolving world.