Our progress / Hot Topics

Non-state Pension Funds industry reform

Back to Media

Minfin Proposes to Protect Pension Savings from Nationalization

13.08.2014 16:57 / vedomosti.ru

Deputy Finance Minister Alexey Moiseev requested that pension market participants draft proposals on “transforming RUB 1.1 trillion of pension savings (that the NPF have accumulated by 2013) into non-state pension programs”, four participants of yesterday’s meeting at the Finance Ministry. Moiseev confirmed to Vedomosti that he has made a request to the market “to consider joining reserves and savings under the guarantee system”.

Following the session, National Pension Funds Association President Konstantin Ugryumov distributed a letter to private funds asking for draft concepts on transferring pension savings into pension reserves.

This de facto means a change of pension savings status — from compulsory state pensions into private. This is an attempt by financial policymakers to mitigate the potential risks of “savings nationalization” — the budget expropriation of RUB 1.1 trillion worth of savings, deposited in NPFs by individuals over the 10 years of the funded pensions system, says a source at the meeting.

Last week, the Government announced the expropriation of pension savings in 2015 – despite protests from the economic block, Deputy Prime Minister Olga Golodets managed to lobby the decision. The take — some RUB 400 billion — will go towards payouts to today’s pensioners, cutting down the Russian Pension Fund deficit.

Still, the RPF deficit is bound to grow each year, therefore the social block of the Government insists on foregoing the funded scheme in favor of the ‘solidary’. “The Government is drafting a mechanism of abolishing compulsory pensions and transition to the voluntary model”, ITAR-TASS quoted Government sources. Yesterday Minfin also asked NPFs to figure out how to proceed without compulsory funded pensions, a Ministry source told PRIME agency.

A Finance and Economy block staffer warns that three scenarios are possible — the funded system remains, and starting in 2016, the NPF receive new money, but “few believe in this”. A second scenario — funds retain whatever they have accumulated “prior to the moratoriums” — RUB 1.1 trn and a further RUB 500 bn of savings for 2H 2013. A third scenario is expropriating all NPF savings. “We must not let it happen — funds will not be able to withdraw this money from assets, there will be losses, and this will deal a huge blow to the market”, says a Vedomosti source.

Another request by Moiseev to the market participants is for draft proposals on incentives for employers and employees to save for their pensions themselves, say sources.

One of the ideas is to make employers establish a corporate pension program once their headcount reaches a certain limit. The exact limit for Russian companies is as yet “undefined — and subject to discussion”: NPF market participants have proposed earlier to set the limit at 500 or 1000 employees. Three sources at the meeting claim that the scheme could run like this: both the employer and the employee deduct 3% salary towards the pension, receiving tax breaks from the state in return. For instance, to prevent the tax burden from increasing too much for the employer, a partial or full deduction of this tariff is needed. For a mandatory 3% corporate pension deduction, the employer could receive a 3% or 1,5% reduction of the Russian Pension Fund insurance deposit (that now stands at 22% from an annual salary of RUB 624,000). In order to stimulate people and companies, private and corporate pensions are planned to be protected by the Deposit Insurance Agency.

Time is critical — by the weekend, National Pension Funds Association to collect drafts from market participants and forward them to Minfin. The new incentive scheme for individual pension savings could be launched as early as 2015.

Natalia Biyanova

Non-state Pension Funds industry reformProject Group №2