Save for the future: features of the new long-term savings program

The President of Russia signed a law on the launch of a long-term savings program (LTS) for citizens from January 1, 2024. This is a big plus for those who are ready to save money for the future, and with co-financing from the state. It is important that the current pension systems will be preserved, and VEB.RF, which shows good results from the placement of savings, will continue to perform the functions of a state management company. We’ve compiled the main provisions of the new bill and sorted out the incentives for people who are thinking ahead of time about how to save for the future.

Save with co-financing

President Vladimir Putin signed the law on the long-term savings program for citizens, which will come into force on January 1, 2024. At the same time, both the existing pension systems and their key representatives remain in force – for example, the state management company (GUK) VEB.RF, which consistently shows quite high results compared to private NPFs in terms of profitability from the placement of savings.

Meanwhile, Russian Finance Minister Anton Siluanov said earlier that, on the one hand, the new program will allow citizens to receive additional income in the future, and on the other hand, it will provide new sources of domestic financing for the economy. According to this logic, it turns out that both the state and the population of the country will benefit.

The program certainly contains a number of innovative proposals. First of all, participation in it will be voluntary. To do this, it is necessary to conclude an agreement with one or more NPFs – these organizations invest citizens’ funds in instruments with a stable return. Russians will form long-term savings on their own through contributions and existing pension savings. Employers can also contribute to the program. The state will co-finance for three years the accounts of those who decide to take part in the program. Moreover, in fairly good volumes: 1/1 with an income of up to 80 thousand rubles. and 1/2 with incomes from 80 thousand to 150 thousand rubles, but not more than 36 thousand rubles a year or 108 thousand rubles for three years. Again, an annual tax deduction of up to 52 thousand rubles. is also a significant plus.

Of course, the great advantage of the program is that citizens can, if they wish, use their savings even before retirement, 15 years after entering the savings program.

“You can use this account only after 15 years of participation in the program. However, in some cases it is possible to make early withdrawals from the account, for example, due to treatment,” says Fyodor Sidorov, a private investor and founder of the School of Practical Investment.

Save up for the future

The program is able to attract Russians to the new system, emphasizes Ivan Samoylenko, managing partner of the B&C Agency. The expert emphasized that savings can be inherited. The money will be insured according to the principle of bank deposit insurance, but for twice the amount – 2.8 million rubles. Thus, the new system of long-term savings is a big plus for those who are ready to save for the future.

At the same time, it is important that the existing systems for the formation of pension savings are preserved, including the funded one, which until 2014 was formed by about 75 million people. The insurers in the system are NPFs or the Social Fund of Russia (SFR). With the largest portfolio of savings on the market – more than 2 trillion rubles. (there are about 38 million SFR clients in it) – the state management company VEB.RF operates. The performance of VEB.RF’s pension portfolios is comparable to or ahead of the performance of the largest NPFs. VEB.RF will retain its role as the leading benchmark in terms of profitability in the new system, Valery Yemelyanov, an expert on the stock market at BCS World of Investments, believes. “VEB has the largest portfolios of long-term securities (mainly government bonds). This is an obvious guideline for funds and for citizens on the pace at which future pensions can be increased,” says Yemelyanov. The return on investment by VEB.RF, which is responsible for managing the savings of “silent people”, in 2022 amounted to 9.7%. For comparison, the average return on NPFs in 2022 was 5.1% (data from the Central Bank). Silent people are citizens (about 39 million people) who left their pension savings in the SFR, and did not transfer them to the NPF.

The state will add to savings

Significant bonuses of the new system are co-financing from the state during the first three years and a tax deduction. As a result, the new system of co-financing long-term savings will be a significant plus for those who are ready to save for the future. The option of investing 36,000 per year, receiving 36,000 from the state in the form of co-financing and about 150,000 more in the form of income from government bonds over the next 15 years, in principle, sounds good. And the amounts of contributions are not so great, from 2000 rubles a year.

So far, the program has only been adopted and will start operating next year. Surely the government and the Central Bank will follow a powerful educational campaign about the PDS, where there will be answers to the most important questions for people. It is likely that the first results of the program will also be analyzed, it will be adjusted in such a way as to become a serious help for people who form a safety cushion for the future. “The new system of long-term savings is a big plus for those who are ready to save, for example, for retirement. However, for those who are not ready to invest new money, it makes no sense to rush to change the insurer or NPF,” says Alfa Forex CEO Guzel Protsenko.