Translated material
Doubling of GDP
The President joined the pension reform
Addressing the Federal Assembly yesterday, President Vladimir Putin proposed a way out of the pension crisis . According to the head of state, in order for pensioners not to live below the poverty line, it is necessary to stimulate voluntary pension provision. To do this, the Pension Fund will double the amount of funds contributed by citizens to non-state pension funds (NPF). Yesterday, the head of the presidential expert council, Arkady Dvorkovich, said that thanks to this, in 10-15 years the size of pensions will increase by 30-70%.“It is necessary to stimulate voluntary pension savings. In this regard, I propose that part of the funds from the national welfare fund be used to co-finance such voluntary pension savings,” Mr. Putin said yesterday. As the president explained, “for every thousand rubles of a citizen’s voluntary contribution to his personal savings account in the Pension Fund, the state must add another thousand rubles. And, naturally, in order for these contributions not to depreciate over time, they must be invested, providing the necessary profitability and reliability.” According to Mr. Putin, the government has yet to determine the maximum size of such public investment: “I won’t give specific figures now - the government is afraid if I name them, but it knows how much it is.”
However, as Kremlin officials explained after the president’s message, next year’s budget will include expenses in the amount of 370 billion to 470 billion rubles. Thus, the maximum amount will be 18 thousand rubles. per year per person.
As Mr. Dvorkovich later explained, this will be done in the near future - the government, by the end of the spring session, must develop changes to the legislation on pension insurance and the budget, providing for doubling the funds of voluntary pension savings of citizens at the expense of the state budget. Accordingly, starting next year, the new system should be operational. According to Mr. Dvorkovich, the preliminary mechanism may look like this: a citizen declares his desire to deduct a certain amount of money from his salary and send it to the management company of his choice. At the same time, the Pension Fund, at the expense of the National Welfare Fund, additionally credits the citizen’s account with the same amount that he himself transferred. “Thus, the pension capital doubles,” noted Mr. Dvorkovich.
Citizens themselves can decide how many years they will receive a non-state pension. “According to our estimates, this will allow us to increase the pension by another 30-70% in 10-15 years. This is an addition to the pension that we could not receive using the current pension system,” noted Mr. Dvorkovich. He emphasized that the most important factor here is “citizens’ trust that these funds will not depreciate.”
It is noteworthy that last year the Ministry of Economic Development prepared a bill aimed at stimulating voluntary pension insurance. It provided for the possibility for a citizen to pay at least 4% of the amount of earnings towards the funded part of his labor pension. To stimulate this, an amount equal to half of the voluntary contributions paid by the citizen should be allocated from the federal budget to the insurance part of his labor pension. In addition, the citizen was provided with a social tax deduction from income tax for the amount of voluntary insurance contributions. However, this bill was not submitted to the State Duma at that time.
Market participants believe that such government measures can really interest the population. “This idea is not new; it has been discussed in recent years. Co-financing is a good tool for stimulating savings. But I believe that two more measures would help make policy in this area more effective - a good tax incentive for pension savings (currently only earned income is not subject to income tax) and tightening the requirements for pension funds in order to strengthen their reliability. Together with government co-financing, such measures could have a very good effect,” says Andrei Nikitchenko, president of the NPF Stalfond.
At the beginning of 2007, there were 289 non-state pension funds in Russia. At the same time, the top three funds established by leading Russian companies account for 73.6% of pension reserves (RUB 204.4 billion). The largest fund, Gazfond, accounts for about half of all reserves. The number of NPF participants was 6.2 million people.