After all the turmoil that has made the state over the past few years in the pension reform, perhaps the only hope of the Russians to a decent old age remained a non-state pension funds (NPF). Those who managed to transfer their accumulative part of pensions to the beginning of an endless Saga with their “freezing” (a moratorium on these contributions, we will remind, now renewed till 2021), sincerely believe in getting a raise that will allow them to somehow make ends meet.
However, the harsh economic reality imposes on these plans but its sad resolution.
Thus, the study Association of NPF and Scientific-research financial Institute (nifi) testifies in the fourth quarter of 2018, the return on investment for future retirees may be reduced to 5.22%, and in the future for the first quarter of 2019 this figure is in danger of falling even lower to 5.12%. It’s even worse than that of the state management company of Vnesheconombank (which, judging by the end of 2018 expanding the portfolio of savings, multiply the money for future retirees by 6.07%).
At the same time, the Chairman of the Central Bank Elvira Nabiullina suggested that at the end of March the growth of prices in annual terms to reach the level of 5.5−6%. In other words, we are talking about the fact that all the future pensions of Russians simply “eats” inflation. These results of management, are confident the authors of the study, will be a serious impediment to attracting private funds for new clients.
The main reason for such a development, experts say, is that the stock market returns in principle, falls.
A minor increase in rates is only observed for the last six months, says “SP” Deputy Director General of the non-state pension Fund “Opening” Denis Rudomanenko. But before that, they almost dropped continuously since the beginning of 2015. The key rate was reduced from 17% to 7.25%, respectively, in the market all this time remained, the overall downward trend in yields. In addition, of course, the background, first and foremost, sanctions, provoking volatility of the market, including the market for public debt. Index of OFZ Mosuri for 2018 showed an increase of just 2 percent, and in September, the drawdown in the OFZ market reached 3%. So the overall picture is quite natural.
“SP”: — What exactly should be done to yield NPF increased? And that, therefore, can prevent?
— First, you need to still earned a new mechanism for the individual pension capital (PKI). Because now the problem of efficiency of the funded system is not that the funds don’t earn much money, but the fact that citizens today have virtually no publicly accessible tools for the replenishment of the accounts. If the system is replenished with money, which was paid in the form of insurance premiums by the employer, now the possibility is only in the framework of private and corporate voluntary programs, i.e. outside the storage system.
In fact, the reform of the IPC is aimed to give access to this tool to all citizens and to make it as easy from an operational perspective. Another component of the reform should be transparency and stability of the system. Sustainability, including in terms of legislation, because funds under COE will belong not to the state, and by members of the system, it will be impossible, for example, to freeze. And confidence in the system will open up opportunities for long-term planning, which, of course, would considerably increase the efficiency of investment.
“SP”: — what about the ratio is far from impressive correlations between inflation and profitability of NPF in the market? Here that can be corrected?
— For quite some time, there is a proposal to expand the investment Declaration for the NPF that would allow them by sensible diversification of risks where things get a little more than just the Deposit rate. It all depends on the new principles of control over the activities of NPF by the Central Bank. In particular, the mechanism of stress-testing, earned 2 years ago, which aims to gradually replace its outdated listing rules, which as can be, on a risk-oriented approach, where constraints on the portfolio are determined by the structure of liabilities of the NPF, rather than a standard set of rules with the same brush. And thus, in fact, to give NPF more opportunities to earn for their customers without also taking unreasonably high risks.
“SP”: — And now we have what position?
Now some intermediate state, when we have been running and stress testing, and formal restrictions on the types of investments the structure of assets. The Bank of Russia has repeatedly said that as soon as the risk-based approach will be deployed to their full extent, these limitations will gradually start to withdraw. I think it will be a time when the funds will be able to more comfortable feel in their aspirations to overtake inflation. According to my estimates, this will happen in parallel with the reform of the IPC, within the next eighteen months to two years.
Recall the concept of a PKI is now actively developing the Ministry of Finance jointly with the Central Bank. As said Elvira Nabiullina, its implementation in the near future is a priority, because the individual’s pension capital, in her words, “should breathe new life into a system of pension savings”. The first Vice Prime Minister, Minister of finansowane Siluanov had earlier said that he expects the launch of the mechanism of a PKI already in 2020.
However, the government issues the pension system the rate suggested by some experts, is fundamentally not true, and no good will not result.
When we speak about reform — said “SP” rector of Academy of labor and social relations Alexander Safonov, it means that we radically change the whole nature of the system. But instead, it was chosen not the best option, which, figuratively speaking, “froze” the whole system is efficient problem solving. Of course, one quick swoop to try to change the expenditure commitments of the pension Fund of Russia, which, in fact, was made while raising the age of retirement. But this is nothing more than a temporary respite. And in 4-5 years all the problems that, in fact, demanded such a quick response, will once again stand tall. It’s not the pension reform as such, but only change one parameter. So Willy-nilly, still have to go back to talking about why the system is still ineffective.
To overcome the crisis of the Russian pension system, the expert believes, it is necessary to abandon the score calculation formula of pensions, to significantly raise the minimum wage and change the system of insurance of contributions. This idea, by the way, Alexander Safonov, together with the financial Ombudsman Yuri Voronin and Professor of Economics Eugene Gontmakher already voiced during the seminar “Policy of active aging and pension reform,” Institute for social policy at the HSE on 28 February.
The essence of changes consists in the following. First you need to combine all three extra-budgetary Fund for social insurance (pension Fund, mandatory medical insurance Fund and social insurance Fund) into a single social insurance Fund. The control of funds of the organization should not be government alone. The right to vote needs to trade unions of workers and enterprises, and the government will be only one of the participants in the General discussion.
As a result, each resident will have a single insurance policy with a minimum program for each type of insurance, which cannot be abandoned because one should not remain without any social protection. However, any type of insurance it will be possible to “strengthen” depending on the desires and needs of every citizen.
Instead, a point system of calculation of pensions proposes to introduce payments from each paycheck of the employee in the selected range to them (previously — from 11% to 25%). Accumulated thus over the decades the money will come back to citizens in the form of pensions.
Simultaneously, the Russians will have the right to go to early retirement, as is already happening in several European countries. Minimum work experience, taking into account foreign experience will be set at 20-25 years, if you want citizen could retire already at 47. If such a formal experience not to be missed, it will be possible to purchase for a fee.
— All this, — says Alexander Safonov, — will improve the efficiency of the entire social insurance system in Russia and to end the system of cross-financing. Because of this unique situation when different categories of taxpayers pay into the insurance funds for different amounts, while claiming to receive the same pensions, in no other country in the world.
“SP” — And what is bad?
— Imagine a situation where the government says, regardless of how much you put in the Bank, 200 rubles, 400 rubles or more, you will then receive the same payoff. What kind of economy is there to say? Nevertheless, we formed this practice. But the pension funds and social insurance is not a tool for fighting poverty. They are created only in order to pay a specific social compensation due to the current events. Especially that situation, all are different. Someone, for example, working as self-employed and does not have today no possibility to pay those contributions. And people work in different ways. Someone earned a lot today, and tomorrow a little. But for the pension Fund, it now has no value.
“SP”: — Indeed, the situation may be different. For example, in Russia there is an impressive group of people, forced, due to various circumstances, straight out of school to go to work, and in low-paid jobs. For these people the proposed changes provide some kind of guarantee?
— To begin with, and now it is the number one problem. We talked about the fact that one of the essential problems that do not allow to balance the pension system as we would like, is that a number of people do not have sufficient experience in view of the fact that their employment relationship was formed. And not because people were self-employed, and because their relationship is not formalized, because the shadow economy. And as a result the person works, and then, if surviving, receives the minimum social pension.
“SP”: — As this problem is supposed to solve?
— The only way — the state should offer two options. The first is to change the conditions under which the person entering into such conditions, can pay for itself. That is, the foreclosure experience that we offered. However, we must proceed from the fact that the minimum pension should not be less than minimum wage. Here it is necessary to count. The second way is the government should change the economic conditions that lead to such shady situations. If the government pays low salaries to state employees, then you have to change the principle of pension provision. It should not be insurance, because when such earnings to a funded system is impossible. We 3 years ago calculated that a person receiving a salary at the minimum Wage level must have 128 years of service to save up for a pension equal to the subsistence level.
“SP”: — So, and here how to be?
— From our point of view, the government should divide people according to a certain principle. For example, a worker in the conventional insurance system when the employee pays the employer, as it is now. And the second part of the state’s obligations when the pension becomes a component package regardless of the size of the salary (which by law cannot be lower than minimum Wage). But then the pension needs to be in the Soviet Union — distribution, depending on, for example, positions held in the last 10 years of employment.
“SP”: — How high is the probability that the Ministry of Finance or Ministry of labour will undertake the implementation of these ideas?
— The Ministry of Finance, most likely, any implementer and will not be. His task is different. He decides the situation with the balance of income and expenditures of the Federal budget. And now, as it seems the Finance Ministry, he made it. The Ministry of Finance — accountant. You have money, I pay, no money good — bye. This functionality just of the Ministry of labor. It needs to act here. But it’s hard to tell if they’re ready, because the famous “law officer” is: do not look for instructions. In other words, we have instructed officials to work. No requests — they do nothing. So initiative from them should not wait.
But remember, last year Mikhail Shmakov (Chairman of the Federation of independent trade unions of Russia — ed.) went to the President with a proposal to establish a Council for pension reform. Because the unions and employers the issue of pensions has not been resolved. They need to do and not be discounted for at least two participants in the process of “adjustments” to the pension system.
We, as experts marked, what to do. And then — is a matter of negotiation. A matter of time, of course, necessary. But I want it to be done consistently and with logic. Because by itself, for example, combining social funds on the old platform will do nothing. You can’t, as they say, not a single word of the song to throw away. But, again, alternative solutions simply do not. For one simple reason — all other options were already tried, nothing happens.
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