Russian pension reform opportunity for managers

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RUSSIA - Pension system reforms in Russia and the CIS could open doors to those countries for foreign fund managers.

Russia has been tackling the issue of non-state pension funds reform for 10 years. Introduced only in 1991, by 1993 there were already 1000 non-state schemes. As tough requirements were introduced, however, this figure shrank. As of 2001, there were 268 non-state pension funds in Russia with e1.6bn in total assets.

Realisations that the non-state pension fund market must improve are being noted, however, and the market looks set to grow. As employees become more familiar with the schemes, and more aware of the need to save for retirement, the number of members, and therefore assets will increase. In 1997 around 2m Russian citizens were contributing to occupational schemes – a figure which has already reached 4m.

At a conference in London Evgeny Yakushev, deputy chairman at the Electric Power Industry pension fund said today: “Russia could have up to e7bn in occupational pension funds by 2005, and in terms of third pillar schemes, Russia could also have as much as e3bn in voluntary schemes by 2005. This will provide foreign fund managers and advisors with excellent opportunities.”

Currently asset allocation of the average non-state pension portfolio stands at: 58% in equities and corporate bonds, 13.1% in commercial paper, 12.6% in bank deposits, 9.7% in state bonds, 1.6% in municipal bonds, and the rest in real estate, cash and other assets.

As Russian regulation opens up regarding where assets can be invested, more specialised fund managers will be required.

The conference also heard that Armenia is also undergoing significant pensions reforms. The country plans to adopt a second pillar system in the near future, most likely in the form of a mandatory defined contribution system to support the first pillar pay-as-you-go system. Voluntary pension laws have also been drafted.

Azerbaijan, however, has been less forthcoming in its attempts on reform. A first pillar pay-as-you-go scheme provides the only source of retirement income. To the handful of western companies working in the oil and finance industries there, the lack of a second pillar scheme is frustrating, but the government seems adamant to ignore the problem for the time being, the conference was told.

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