(September 23, 2013) — The creation of a new registration system for non-state pension funds in Russia will result in the funds losing RUB500 billion ($16 billion) in the next two years, according to news reports.
The Finance Ministry in Russia has proposed barring non-state funds from collecting and investing new contributions until they re-register as open joint-stock companies and are accepted into a new insurance programme, designed to boost transparency and accountability.
The registration process can take up to two years, during which time any new money due to enter those non-state pension funds will be transferred to the country’s state development bank, the VEB.
Money already managed by pension funds will stay with them through the reform period, and as soon as any of the more than 90 existing non-state pension funds re-registers and is accepted into the insurance programme, it will receive funds back from VEB.
Finance Minister Anton Siluanov told Bloomberg the two-year registration process was necessary because it was “important to bring order to the regulation of the non-state pension funds system, to make sure only dependable and conscientious participants get access to the market”.
“It’s also important to set a strict prudential supervision on the financial market so that pension savings are protected,” he added.
Currently, one-third of Russia’s total RUB2.6 trillion of funded retirement money is invested in stocks and bonds by non-state pension funds.
But the VEB, which invests on behalf of people who haven’t selected a manager, focuses on government, mortgage, and guaranteed infrastructure-related debt, earning a yield of 9.2% last year.
Domestic inflation ran at 6.6%, meaning the VEB yield rate is relatively low. Russian investment experts told Bloomberg the measure would damage non-state pension funds not only through the lower returns on their new contributions, but also because corporate bond yields will be lowered by the move.
“The measure will lower the demand for domestic corporate bonds,” Dmitry Dudkin, head of fixed income research at UralSib Capital, said. “This will further widen the chasm between the state-related instruments and risks of private companies.”
The ministry is predicted to submit its proposals on non-state pension funds to the State Duma, the lower house of parliament, by the end of September.
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