RUSSIA – The chief investment officer of State Street’s Russian affiliate Pallada says reform has “breathed new life” into the Russian pension system.

The 2003 reform, with its incentives for transparency and lower taxation has “breathed new life,” said Elizabeth Hebert of Moscow-based Pallada Asset Management.

The outlook remains positive for the development of pension schemes, even after presidential elections set for March 14, Hebert said in an interview. She said pensions had been previously “overly-taxed”.

Corporate pension funds, Herbert said, have existed in the Russian market since 1998, but funds tended to be “invested back into the corporation in a way or another”.

She said that the business leaders known as oligarchs, who had “distorted the reforms, including the pension reform” had now been sidelined - “at least in part” - by reformists. They were no longer perceived to as being above the law.

And because the reform “made it possible for those who want to be transparent to be so” managers might switch to a more open approach to business.

“The pension funds are now treated normally on the tax point of view. They were overly taxed in the past and they did not have very clear roles as far as reporting returns,” she also said.

In the reform, the government “carved out a role for the private pension funds”.

“Suddenly the government had to make the rules more in favour of individual investors. So you have now pension funds investing in a more diversified portfolio.”

President Vladimir Putin, Herbert explained, had also commented it was time to take care of pensioners. Putin, who has sacked prime minister Kasyanov in what has been seen a move to sever his last link with Boris Yeltsin, is likely to win next month’s elections.

“I think there is going to be further improvements, less tolerance for the sort of things in corporate pension plans that have been in the past,” Hebert said.

Pallada also said that Poderzhka investment fund, which targets second-tier equities, outperformed the Russian stock market index by 38 percentage points.