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Minfin’s New Plan to Boost Trust in Private Pension Funds

14.03.2013 18:56 / vedomosti.ru

“Private Pension Funds oversight must be similar to banking, in order to boost public trust in these funds”, said Deputy Finance Minister Alexey Moiseev.

Minfin is ready for radical change, and is looking into new type of incorporation for Private Pension Funds. Today they are registered as non-profit organizations, since when the first funds arrived in 1993, this status allowed their owners to use the funds as a money bag for non-core assets. However, with over 600 billion Roubles in PPFs today, the form of incorporation needs to be far more transparent.

“The question is: is it right for pension funds to act as non-profit organizations? This type of incorporation has its upsides and downsides, thus the change is long overdue”, said Moiseev. “If you are a charity fund, NPO is the right way, and if you are a pension fund, probably not”, says Deputy Minister. The status tips the balance between compulsory state pension plan and corporate pension plan holders in favor of the former — if an NPO is liquidated, the leftover funds are taken by the state and corporate pension plan holders cannot withdraw their money, said Moiseev.

Minfin must arrive at a decision on the new type of incorporation for Private Pension Funds by 1 August.

“The ministries were delegated this task at a meeting with First Deputy Prime Minister Shuvalov”, said a source. The funds that are happy with their NPO status will retain it and be allowed to work with private savings, he says.

Moreover, Minfin has drafted a series of bills to improve transparency and set the level of liability of PPFs. The key proposal is to make compulsory state pension plan insurance reserves and unified guarantee funds mandatory for PPFs — along with state savings insurance and the respective fund managed by Deposit Insurance Agency.

PPF reserves must be formed with savings left from deceased insurance policy holders, who have no next of kin, and partly from charter capital. The reserve must be used in the event of shortage of funds to pay pensions, proposes Minfin. The logic is that if the fund incurs losses, it must try to compensate them from own insurance reserves or assets, and if these prove insufficient, the payments are made by the Deposit Insurance Agency. Minfin proposes to have the exact levels set by the megaregulator.

“We support the state deposit insurance system, but creating another guarantee system for PPFs is unfeasible. All market participants – the Russian Pension Fund and private funds – must play by the same rules”, says Deputy CEO at Blagosostoyanie Private Pension Fund Ivan Volkov.

Natalia Biyanova

Non-state Pension Funds industry reformProject Group №1