Russia’s mandatory second-pillar pension system is in chaos again as the government appears bent on extending the moratorium on mandatory pensions contributions to non-state pension funds (NSPFs).
In early August, Labour and Social Protection minister Maxim Topilin confirmed that, as in 2014, all mandatory contributions would be diverted to the first pillar in 2015.
Topilin called the funded second pillar inefficient and ineffective, and of benefit only to the financial institutions that run the funds.
The minister’s statements have fuelled fears the government is considering abolishing the system or converting it to a voluntary one.
The NSPFs, in place since 2002, have more than 22m members and assets under management of around €23.5bn as of the end of March.
The statements also exposed tensions between the so-called ‘social’ and ‘financial’ blocs within the Russian authorities.
The former are primarily concerned with reducing the deficit and budget transfers to the Pension Fund of Russia, the first-pillar institution.
The latter look at the implications of shrinking a pool of domestic financing at a time of escalating EU and US sanctions in the wake of the Ukraine crisis, and escalating Russian government borrowing costs.
Interfax, citing an anonymous Bank of Russia source, wrote that the central bank criticised the extension for undermining confidence in the pensions system and depriving the economy of much needed investment.
Meanwhile, Deputy Economics minister Sergei Belyakov, who on 6 August apologised on his Facebook page for what, in his personal opinion, was a “stupid” policy, lost his job later that day.
The policy also runs counter to the Finance Ministry’s own plans for pension funds.
Its public declaration of goals and objectives for 2014, published on the ministry’s website in early June, singled out pension funds as the realistic source of long-term domestic financing in Russian investment projects.
The National Association of Non-State Pension Funds (NAPF) has also published a highly critical response.
It laid the blame for poor returns on weaknesses in the Russian stock market and existing pension fund investment regulation, reminding the government that it had been discussing extending the list of permissible assets for the last five years.
It accused the government, through its unilateral decision to extend the contributions moratorium, of once again failing to consult with other partners (employers and trade unions) in the Trilateral Commission on the Regulation of Social and Labour Relations.
It also accused the government of backtracking on president Vladimir Putin’s earlier promise, made in 2013, to restore contribution flows once the system was reorganised to improve transparency and strengthen safeguards.
All the non-state funds had to convert from their status as non-profit-making entities to joint-stock corporations, institute a system of guarantees and obtain a licence from the Bank of Russia.
Currently, funds accounting for some 76% of all assets have made the conversion, a share expected to rise to more than 95% by the end of the year.