1. 09 Oct 2013
Non-Government Pension Funds in Transition
Due to the demographic slump in the 1990s, there will be more pensioners and fewer employed persons in the future to provide for the
increasing number of retirees in Russia. By default, all pension deductions go to the government pension fund. Non-government pension
funds were supposed to ease the burden on the government pension fund, and to provide an additional type of social security for the
elderly.
Russia Premium Database
+ Financial Market
+ Non-Government Pension Funds
+ Table RU.ZF01: Non-Government Pension Funds: Summary
+ Table RU.ZF14: Non-Government Pension Funds: Annual Indicators
Non-government pension funds involve two major pension plan programmes,
namely the voluntary non-government pension provision and mandatory pension
insurance invested in non-government pension funds. The number of participants
in voluntary non-government pension provision, for one, has remained fairly even
for the last nine years, including some 6.71 million people in the second quarter of
2013, which compares to 5.52 million people in the third quarter of 2004. This
slow growth in take-up of 21.5% over the last nine years is attributable to the high
degree of uncertainty surrounding long-term pension plans, namely the high
inflation rate eroding returns and the ruble devaluation. A significant portion of
participants, 1.51 million people (22.6% of the total), are already in receipts of
their pensions in 2013, since this option has less restrictions and is comparable to
a long-term savings account where people can choose when to redeem it.
The second option involves transferring the mandatory pension insurance from the
government to a non-government pension fund. The non-government mandatory
pension insurance has seen the number of insured persons under this programme
jump from 605,000 in 2005 to 20.31 million in the second quarter of 2013, an
unprecedented growth rate over the past eight years; the numbers are still
climbing at an average of 11% per quarter in 2013. This option is more appealing
to most people because non-government pension funds provide more possibility
of a higher return, although they might be riskier. With proposed legislation to
minimize the funded part of the pension in the government pension fund starting
from 2014 there might be a further boost in transfers to non-government pension
funds towards December 2013. In spite of the boom in this programme only 234
thousand received their pension in the second quarter of 2013, which is a tiny
1.2% of the total insured in this programme and mostly denotes the younger age
of participants and restrictions on collecting their pensions until reaching
retirement age.
The legislation for non-government pension funds has been in the process of
development and will be revised further according to the statements from
government representatives. The number of non-government funds started to
diminish in 2007 due to changes in legislation aimed at cleaning up pension funds
and making them bigger. Its number decreased to 134 in 2012 from 146 in 2011,
continuing the trend of the previous years. Raising the capital requirements and
the insurance provisions are among the changes that are underway.
Contributed by Alexander Dembitski, CEIC Analyst
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