Russian non-state pension funds (NPFs) returned an annual weighted average investment return of 5% in the first quarter of 2017, according to sector regulator Central Bank of Russia (CBR).

The funds recorded a more modest 2.5% gain for pension reserves. Meanwhile, inflation for the period was 3.7%.

The year-to-date returns of the 38 NPFs currently signed to the Deposit Insurance Agency’s guarantee scheme (a condition for continuing to participate in Russia’s compulsory second-pillar system) varied widely, from a gain of 12.2% to a loss of 5.4%.

Regulator’s diversification push

While the CBR has yet to publish the aggregate portfolio asset breakdown, it is likely to show a continuing increase in corporate bonds and shares, which accounted for 50.2% and 17.3% respectively at the end of 2016.

The regulator has been encouraging this trend towards investment in the ‘real economy’ by lowering the cap on deposits and other bank instruments, and liberalising investment in the corporate sector.

This February it published proposals to further shrink the current cap on banking sector investment, which is currently 40%.

The bank also said it wanted the NPFs to start selling out of mortgage participation certificates, with only those securities holding a valuation from an independent appraiser being held to maturity.

To boost investment in the technology sector, NPFs will be allowed to invest up to 5% of a portfolio in companies quoted on the Moscow Exchange’s IIM-Prime segment.

Savings rate up

Despite a continuing moratorium on the 6% contribution rate to NPFs, in place since 2014, since the start of the year pensions savings grew by 11.2% in Russian rouble terms, to RUB2.4trn (€38.2bn). Membership grew by 15.4% to 34.4m.

This growth reflected the continuing success of NPFs attracting clients away from the State Management Trust Company, which runs the pensions system for state-owned Vnesheconombank (VEB).

A large share of VEB’s savers invested there by default.

Second pillar reforms shelved

In separate news, Russian daily newspaper Izvestia has reported that the individual pension capital account (IPC) system drafted by the CBR and finance ministry to replace the current second pillar in 2019 is set to be put on ice for a year.

The IPC has been described as ‘quasi-voluntary’, meaning savers would be automatically enrolled unless they specified otherwise. This has been strongly opposed by the Russian labour ministry, and deemed by some experts to be illegal.

According to Izvestia, the IPC project will be discussed as part of the reform of the entire pensions system after next year’s presidential election.

The reform will have to tackle the politically explosive issue of raising the retirement age, which is currently 55 years for women and 60 years for men.