What can one expect from the new pension reform in Russia?


What can one expect from the new pension reform in Russia? Photo: Dmitry Reznov

In Russia, another pension reform is coming, prepared by the Central Bank and leading non-state pension funds (NPFs). According to the ideologists, it should encourage the population to participate more actively in the accumulation of future pensions. The new concept assumes that the funded part of the benefit will be transformed into a system of non-state pension provision (NPO), which will complement the existing similar mechanism. It is assumed that insured Russians will have the opportunity to dispose of pension savings, unlike the current system, where these funds are managed by the state management company VEB or the NPF chosen by the pensioner. The nuances of the new pension reform are analysed by columnist of Realnoe Vremya, economist with many years of banking experience Artur Safiulin.

Essence of the new reform is from IPK to GPP, and then to NPO

The history of reforms in post-Soviet Russia is not so long, but it is unique, since we managed to make a hybrid of several approaches to solving the so-called pension crisis. This term has been circulating in the economic environment for already a long time, since the whole world is facing similar challenges and for a long enough time to form approaches. Let's see what is proposed to be done in Russia and how it correlates with textbooks on economics.

To put it briefly — the state has no funds for a high level of payments, people will have to save for a decent pension on their own. And, apparently, the state will allow people to dispose of these funds as their own.

The Central Bank plans to transform the system of compulsory pension insurance (OPS) into a non-state pension provision (NPO) in such a way that people can feel these funds as their property, which they can use as part of pension payments when they reach retirement age.

For information, we currently have two systems operating:

Savings can be inherited

According to the plans, the funded part will belong to a person, not to the state, and the right to dispose of these funds will come not only after retirement, but also in difficult life situations. There is no exact list yet, it is under elaboration. Health problems and similar situations come to mind. Besides, savings can be inherited.

In general, from 2016, the state could not decide in any way what to do with the funded system, since the scheme introduced in 2002 no longer worked, the moratorium was introduced in 2015, and all our excellent reform of 2002 turned into a kind of construction on paper — everything seems to be there, but it does not work. All sorts of additions began, making the system hybrid, in fact.

For example, there were talks about the introduction of an Individual pension capital system (IPK). It was assumed that those 6% could be sent to the NPF, and after the end of working life, the pensioner would receive additional payments to his basic state pension. It was planned that the system would work in the so-called auto-subscription mode — that is, all people were participants of the IPK by definition. The system was not introduced as a result, instead, the retirement age was raised, prolonging the agony of the OPS distribution system.

In 2019, the IPK project was renamed the Guaranteed Pension Plan (GPP). The parameters of the accumulative system remained unchanged, adding the voluntary connection to the programme. On the advice of the Central Bank and the Ministry of Finance, the so-called individual investment accounts of the third type (IIS-3) were introduced — long-term investments for a period of 10 years or more. This was done with the aim of encouraging citizens to invest for a long time and form their own future income. Tax deductions were also given — after 10 years, a person could receive a deduction for the monthly amount deposited through the employer (but not more than 6%) or for independently deposited amounts (but not more than 120,000 rubles a year).

“We are given the idea that people should take care of their own pension”

The Ministry of Finance is going to submit to the government a law on the new voluntary funded system on December 15, 2021. Taking into account that NPOs have started updating the system, it is correct to expect that the new system will be a continuation of the IPK and the GPP. The advantage of the new system will be the availability of already formed capital, which is transferred from the mandatory pension insurance system, plus guarantees will be provided by the example of the deposit insurance system from the Deposit Insurance Agency of Russia (DIA). In fact, NPFs will offer another product in their line, and for sure most people will choose this least risky product. The only thing that is alarming — are we really going to completely abandon the OPS? If so, it will be a very radical step, but strictly according to the latest economic textbooks. It will be interesting to watch the development of events further.

In conclusion, I would like to note that our OPS system can guarantee the payment of an average pension only at the level of 12-13 thousand rubles a month. The PFR has no funds for more and there is nowhere to take it (it is expensive and politically unprofitable for the authorities). We are given the idea that people should take care of their pension themselves and form savings by using to the maximum the 6% allocated for this. But, taking into account the inertia of our population and general financial illiteracy, we will again slide to a single state management company (which was VEB in previous iterations of the accumulative system), to which citizens who do not believe anything, do not want to study and dive into details transfer their funds by default. The scourge of our society is infantilism (Soviet heritage, in fact — because they expected everything from the state). As a result, their income from VEB was negligible — at the level of 3-4% per annum. Let's wait and see.

Автор: Artur Safiulin
Reference

The author's opinion may not coincide with the position of the editorial board of Realnoe Vremya.



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