Mikhail Zurabov, head of The Pension Fund of Russia has called for the creation of a funded pension regime in the Russian federation to avert the risk of an inequitable future ‘pay-as-you-go’ system.
Speaking at a meeting of the Double Century Club last month, Zubarov noted that Russia’s pensions system had now stabilised to a surplus level of $500m (E500m). However, he added: “ I am sad as a citizen of Russia that our obligation to pensioners is pitifully low. We need to have radical steps in the coming year towards a law on funded pensions. The PAYG system has not been bad and should not be discarded, but a supplementary pensions law is needed along with practical steps for its implementation. If pension funds are to become an investment vehicle they must be funded.”
Zubarov proposed changes to pensions indexation – currently linked to national average earnings. “If pensions indexation is tied to inflation, we will have an opportunity to introduce a mechanism for funded schemes.”
Zubarov also called on the Russian government to lower the country’s crippling taxation rates, which he pointed out had stunted net pay for employees and decreased consumer demand last year – despite the relatively upbeat economy.
Sensing the possibilities under a new political regime in Russia, he said: “We need to lower the taxation rate now, but we must have a clear idea of our commitment to pensioners.”
To this end, Zubarov noted that by May 2000, pension levels will have doubled in the space of a year. He also stated that steps had already been taken compile individual pension accounts for each of the 63m members in Russia.
“Our first priority will be to implement 1998’s pension law by the end of 2000. This will see an increase in pensions by 200%,” he added.
A further dilemma, he said would be whether funded schemes would be inside or outside of the state pension system. “For the next five years the proposal is to administer this under the PFR umbrella. Non state pension funds lost 40% of their assets in the crash of 1998 and we are unlikely to see any buoyant development here in the next five to six years.”
And he sees two clear alternatives for future investment – share issues from industry sectors for raw materials or state securities with ‘different’ capital guarantees than in the past.
After five years he predicts that the state pension fund outlet will hand the assets over to non-state pension fund managers. Hugh Wheelan