At the end of 1995, in Russia for each pensioner there were only 1.8 persons economically active. The prognosis is that after 2000 there will be a considerable increase in the adverse demographics, with maybe just one worker per retired person by 2020.
The shortfall in assets in the State Pension Fund of Russia has led to the situation where the state pension, which in the past was equal to 60-80% of average wages, today only comes to 20-30%.
Retired people form more than 25% of the total population in Russia and the majority of them are on the edge of survival due to the small size of pensions, which currently are less than 80% of the minimal subsistence level. In addition, the continued budget deficit of the pension fund of the Russian Federation has resulted in considerable delays to payment of pension benefits. The current pension system does not provide a definite relationship between workers' contribution and the size of their pensions.
Decreasing wage levels in Russia and the increasing number of privileged categories of pensioners are affecting negatively pension provision for many. So, the situation with regard to pension provision in Russia can well be described as being in crisis.
In August 1995, the government approved the concept reform of the pension provision system in the Russian Federation. The stated objective is the creation of a three tier system, which includes: basic, social insurance and non-state pensions. By Russian and foreign specialists' estimates, this concept reflects present-day thinking about the ways and the methods of the pension calculations and the role of funding and management control. But up to now the fully elaborated concept of a new model of pension provision and the mechanism to realise this are still absent.
Nevertheless, the first stage of reform is evident. In the light of the reform of pension provision the government adopted a number of documents including: 'On individual (personal) accounting in the system of state pension insurance', 'On introduction of changes and additions into the law of the Russian Soviet Federate Socialist Republic', 'On state pensions in RSFR'. Also draft laws have been prepared but these are not without their disputed aspects. Currently, the Ministry of Labour and Social Development of the Russian Federation has prepared the new programme on social security system.
In our country, the possibility of establishing private pension funds or non-state pension funds (NPF) started in September 1992, after the presidential decree 'on non-state pension funds' was signed. Up to now, this decree is the only legislative act which regulates NPF activities. According to the decree, a NPF must be a non-profit organisation, the only objective of which is to provide its members with pensions. Pension assets must be invested, but only through asset management companies. This decree was going to introduce tax advantages for NPFs to stimulate their development. However, it is necessary to note, that until the federal law 'On Non-State Pension Funds' has been adopted, the question of tax advantages will not be raised.
Adopted in August 1995, the government enactment 'On establishment of the regulation on licensing of Non-state Pension Funds activities and Asset Management Companies for the NPF' allowed NPF activities to be considered legitimate, but the problems of legislation are still present. Control over the NPFs' activities and the creation of a regulatory base are carried out by a state body called the Inspectorate of Non-State Pension Funds, which was set up in 1994. During the period from September 1995 to January 1997, the inspectorate has issued licenses to more than 300 NPFs and 185 NPF asset management companies.
As of August 1, 1997 total assets of NPFs exceeded 6.2trn roubles. The number of depositors - legal entities exceeded 1,500 enterprises and organisations. The number of participants - is more than 2m people. In excess of 200,000 of NPFs participants have already started to receive pension benefits.
Because of the deficient legislation base, a number of NPFs, which have strong financial positions, established the union of non-profit organisations, called, 'The Professional League of Non-State Pension Funds' in 1994. The main objective of this union is the consolidation of funds for co-operative activities on:
l The establishment of a professional market for non-state pension provision;
l The co-ordination of NPFs' activities, aimed at the development of the non-state pension provision system and the realisation of the pension provision reform;
l The creation of positive public opinion about non-state pension provision and NPFs' activities;
l The participation in development of the law 'On Non-State pension Funds';
l The rationalisation of NPFs' activities etc.
The members of the league take an active part in developing of legislative and regulatory bases for non-state pension provision, and participate in workshops of the government, State Duma, and the Inspectorate of NPFs. In order to make the NPFs activities more popular, in 1995 the league initiated the issuance of the specialised magazine, called, 'Pension funds. Also regional associations of NPFs were established in the largest regions of Russia, with a Co-ordination Council set up in 1997 on the initiative of regional Associations of NPF and the League.
The development of the non-state pension provision market is occurring in a climate where both tax stimulation and government support are deficient.
The current fiscal system puts private pension funds in an unfavourable situation as against other financial institutions, for example, insurance companies. This makes non-state supplementary pension provision for enterprises economically unprofitable.
As at present there are no tax advantages at the federal level, although some regions such as Kaliningrad, Volgograd and Tula have introduced tax incentives for NPF membership, in the form of exemption from regional taxation for both participants and employers.
But the principal obstacle to the development of the pensions market is the legal vacuum in which funds operate. The legislation history regarding NPFs and supplementary pension provision reflect the political, social and economic process taking place in Russia. In the presidential decree, a three month period was established for the preparation of the draft on NPFs. In the last four years, a number of drafts have appeared. However, none of them was adopted by State Duma even at the first reading stage. This was partially due to contradictions between the participants of this market and the political disputes between parliamentary deputies.
The Conciliatory Commission established by the deputies of V State Duma offered their draft, but termination of their activity stopped the further process. The deputies of the new Vl State Duma formed a workshop where the experts on private pension funds and the members of the Professional League of Non-State pension Funds took part too. Finally on June 18 this year, the State Duma adopted the law 'On Non-State Pension Funds'. According to State Duma regulations the law is then sent forward to the Federal Assembly and after the adoption of the Upper Chamber (Federal Assembly), it is supposed to be sent to the President. For the moment, the Federal Assembly suggested to form a Conciliatory Committee consisting of the representatives of both the State Duma and the Federal Assembly.
To develop the non-state pension provision, the following need to be done: the adoption of the law, regulating the NPFs activities; modifications to the fiscal system aimed at the development of NPFs, and developing the concept of the state and non-state pension provision.
Sergey Lukonin is chairman of the Professional League of Non-State Pension Funds, based in Moscow