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Russian roundup: contribution moratorium, system changes, consolidation

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Russia looks set to extend the moratorium on pensions contributions to the second pillar for a third year, with the monies once again being diverted to the Pension Fund of the Russian Federation (PFR), the first pillar.

The decision, as reported by Russian news agencies, was announced on 7 October by PFR head Anton Drozdov following a meeting of Russia’s social and labour relations tripartite commission.

The news confirms reports at the end of September by the Russian daily Vedomosti that prime minister Dmitry Medvedev had approved the freeze on diverting 6% of wages to non-state pension funds (NSPFs), first introduced in 2014, into 2016.

The decision marks a U-turn for the government following April’s announcement by Medvedev that the contributions moratorium would be lifted in 2016.

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One of the drivers for preserving the system is the growing role of NSPFs in corporate and long-term infrastructure investment as access to international financing dries up.

This has since been overtaken by more pressing economic events.

This year, Russia’s oil-dependent economy slid into its first recession since 2009, with a further contraction forecast for 2016.

The government is currently drafting the 2016 Budget, which projects a deficit of RUB2,184bn (€31bn), equivalent to 2.8% of GDP.

The 2016 moratorium would contribute around RUB344bn towards the PFR’s RUB576bn deficit, with the budget plugging the remainder.

The Budget has to be approved by the Russian legislature and president Vladimir Putin.

Financial industry opponents of the freeze, such as the banking, securities and depositary associations, have already sent letters to Putin expressing their concerns.

Vedomosti previously cited Bank of Russia governor Elvira Nabiullina as opposing the extension.

Separately, Sergey Svetzov, first deputy chairman of Bank of Russia, announced yesterday at a conference in New York that the central bank was looking to develop a revised pension system that would be unveiled in November.

The Bank of Russia had reportedly asked the World Bank for advice in devising an alternative three-pillar system that would be less costly.

Svetzov questioned whether some of the existing pension funds would be able to continue generating profits for their shareholders, given that the ongoing moratoriums undermined their original business model of regular incomes, and whether they should instead consider consolidating.

Consolidation has been one of the recent trends in the Russian pensions market, with increasing numbers of funds becoming part of larger conglomerates.

The O1 Group, founded by financier Boris Mints, has bought up StalFond, Telecom-Soyuz and Blagosostoyaniye (Welfare), since renamed Budushcheye (Future).

The latter will be merged with StalFond in 2016.

The B&N Group is planning to merge its five NSPFs (European Pension Fund, Raiffeisen, Regionfond, Doveriye and Obrazovanie i Nauka) into a single platform called “Safmar”.

In September, in the first transaction of its type, the European Pension Fund won the auction held by Russia’s Deposit Insurance Agency to take over the assets of the Podolsky NSPF, which went bankrupt in 2013.

Contraction of the NSPF market is also being propelled by the central bank’s continuing crackdown on rogue pension funds.

Since September, it has cancelled the licences of two NSPFs and imposed a six-month ban on some activities of a third.

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