Russia’s non-state pension funds (NPFs) delivered a weighted average nominal return of 10.6% to date on savings in the compulsory system, and 10.9% on reserves in the first nine months of 2016, according to the Bank of Russia (CBR), the sector’s regulator.

Inflation for the period totalled 5.4%.

The results are a marked improvement on the previous year, when the funds returned 9.3% against an inflation rate of 7.1%.

The return of the extended portfolio of state-owned Vnesheconombank (VEB), which manages 96.1% of the assets of workers insured outside the privately run system, fell from 12.1% to 11.18%, a result beaten by 24 of the NPFs.

The investment returns contributed to the increase in pensions savings managed by the NPFs, which grew by 24.3% year on year in rouble terms to RUB2,100bn (€29bn), as did an 11.8% growth in NPF membership, to 29.87m.

The membership growth came from workers switching from having their assets managed by VEB to the NPFs.

In terms of asset allocation, corporate bonds accounted for an increasing share of the NPF portfolio, rising from 40.9% in 2015 to 48.6% in 2016.

The share of equities also grew, from 11.6% to 13.8%, boosted partly by a legislative change in June that allowed NPFs to invest directly into privatisation IPOs.

Meanwhile, the share of Russian Federation central government bonds fell from 6.1% to 5%, and that in regional, municipal, city and other federation bonds from 4.3% to 2.4%.

Over recent years, the CBR has been lowering the maximum limit in deposits – to 40% in 2016 – to free up investment in the real economy, with proposals to lower this to 5-10% eventually.

As a result, the NPF portfolio share fell from 23.6% to 15.8%.

The share in mortgage securities, another focus of CBR regulation because of past abuses, declined from 5.7% to 4%.

Another trend over the reporting period was the sharp decline in the number of NPFs, from 110 to 81, of which only the 43 funds registered with the Deposit Insurance Agency’s guarantee scheme can continue to operate in the compulsory system.

The shrinkage is due to the CBR’s annulment of NPF licences for various violations, and more recently by the growing trend of financial group owners merging their NPFs.

As a result of Russia’s budget and state pension deficits, the moratorium on contributions to the NPFs, which started in 2014, looks set to continue for the coming three years, alongside question marks over the future of the compulsory system.

Previously, 6% of the 22% of the employer-funded social tax on wages went to the privately run system or VEB, the remainder to the first pillar.

The biggest debate is over a proposal by the CBR and finance ministry to replace it with a quasi-voluntary system that would see employees paying a share of up to 6% eventually into what the co-authors describe as a “modernised” pensions system, with employees able to opt out by filing for five-year pensions contributions breaks.