The Ministry of Finance will submit to the government a draft funded pension reform by the end of the year

By the end of December, the Ministry of Finance plans to finalize and submit to the government a bill on reforming the funded pension, which has been in preparation for several years. The proposed changes should be targeted at the wealthiest Russians, experts say

By December 30 this year, the Ministry of Finance must submit to the government a bill on a new voluntary funded pension system, follows from the plan for the regulatory legal work of the ministry for 2022, which Vedomosti has read. The document provides for the principle of voluntariness and tax benefits, as well as the transfer to citizens of pension savings frozen since 2014, Anatoly Aksakov, chairman of the State Duma Committee on the Financial Market, told Vedomosti.

The bill, he said, can be submitted to the State Duma in early December. A source close to the government confirmed to Vedomosti the plans to submit the document to the Cabinet before the end of the year. According to him, the system of individual investment accounts (IIA) will become the main tool for stimulating savings. In particular, IIS of a new, third type will be oriented towards the pension plan, the interlocutor specified.

As Vedomosti wrote in early October, the Ministry of Finance is preparing a single tax deduction system, within which it plans to gradually replace the main, first type IIS (IIS-I) with instruments of a new format. In the concept of a new type of account developed by the department, they appear as IIS-III. The plans of the Ministry of Finance are to establish a single tax deduction from personal income tax (PIT) received not only from funds contributed to the formation of standard long-term savings, but also from other financial market products, provided that the funds received from them go to “targeted payments” ( their list will be established by the government). The amount of benefits for the first, traditional type of investment will not, as now, exceed 400,000 rubles. in year. To qualify for the benefit, citizens will be allowed to have no more than three long-term products at a time.

According to Aksakov, the bill on reforming the funded pension can be adopted in the Duma fairly quickly. “I think we won’t discuss it for a long time. We will try to accept, if not this year, then in the first quarter of next year for sure,” the deputy concluded.

In September, Vedomosti wrote that the Ministry of Finance proposed to carry out the “privatization” of citizens’ pension savings, such a measure was included in a joint presentation with the Central Bank, which was presented at a strategic session on the development of the financial market in the government at the end of August. The privatization of pension savings means the transfer to the ownership of citizens of the savings formed under the mandatory pension insurance system, but frozen since 2014, with the right to more freely dispose of these funds, Aksakov explained then. Such savings were formed as follows: before 2014, 6 percentage points of the insurance rate of 22% were the so-called funded part of the pension, which could be disposed of more freely than the insurance part, for example, transferred to a non-state pension fund.

Work on a new system of pension savings has been going on for several years. At the end of October 2019, the Ministry of Finance published for public discussion a bill on a guaranteed pension plan (GPP), which was developed jointly with the Central Bank. The main difference between this system and the previous one, frozen by the government in 2014, was the need to take care of retirement savings on their own. Previously, the employer’s payment for pensions was divided into two parts – 16% of the wage fund for the payment of insurance pensions (that is, to current pensioners) and 6% for the savings of the employee himself.

But in 2014, the government decided to send these 6% to the insurance pension. It was assumed that citizens would be able to transfer the frozen savings to the SPP. The Ministry of Finance and the Central Bank also offered to give benefits to the participants in the new system for the payment of personal income tax, but not more than 6% of income, and to provide a social tax deduction for deductions over these 6%. It was planned that the employer would also be able to receive benefits: if he decides to co-finance the funded part of the employee’s pension, he will be able to deduct these expenses from the income tax base, but not more than 6% of the employee’s salary. The safety of all savings was guaranteed by the state. Thus, the authorities wanted to give citizens the opportunity, through personal contributions and with stimulating support from the state, to increase their future pension.

In 2020, Anton Drozdov, who was then Deputy Minister of Finance, speaking in the State Duma, said that the draft law on voluntary funded pensions was under interdepartmental coordination, and it was planned to be presented to deputies in 2021. According to him, several options for the concept of the bill were discussed, but in As a result, an exclusively voluntary format of participation was chosen.

To prepare for the fulfillment of the tasks of the president and the decisions of the strategic session of the government, non-state pension funds, together with the Ministry of Finance, the Bank of Russia, and the Ministry of Labor, are developing initiatives to stimulate the creation of long-term pension investments, said Galina Morozova, chairman of the NAPF committee on pension market strategy, chairman of the board of directors of NPF “Future” Galina Morozova. The savings formed in the program of compulsory pension insurance, if the concept is implemented, are transferred to the ownership of citizens with their preservation in the pension system in the form of a standard scheme of non-state pension provision, she noted. Also, according to her, additional incentives are being worked out, such as increasing the size of the tax deduction and other opportunities for managing and increasing the size of these funds.

Representatives of the Ministry of Finance and the Central Bank did not respond to a request from Vedomosti.

The development of this bill has been going on for several years, and the deadlines for its introduction and consideration have already been postponed, which may happen in the future, said Elena Fiveyskaya, director of NRA investment intermediary ratings. Legislation in the field of pensions for citizens is always a rather difficult task, which causes heated controversy, she noted.

The main difficulties with the preparation of the bill are that any changes related to the pension system, except for indexation and distribution of lump-sum payments, are extremely toxic in terms of a possible reaction from society, Anton Tabakh, chief economist at the Expert RA rating agency, agrees. The second problem, in his opinion, is the strong difference in the interests of future pensioners, the Ministry of Finance (how to save government money), the PFR (how not to lose control), social departments (they don’t look that far) and the Central Bank (they are worried about the securities market ). World experience shows that good reforms are made not at the level of financial departments, but with political will at the highest level and by interdepartmental bodies with broad powers, the expert pointed out.

The relevance of such a bill is now almost zero, the expert believes.BCS the world of investments” Valery Emelyanov. The decision, in his opinion, should have been made at the stage of dismantling the old funded system, but now it will not arouse enthusiasm among citizens. After the freezing of contributions to the funded pension in 2014 and the multiple extensions of this “temporary” decision, people’s trust in the system was undermined, the expert noted, it will take many years to return it. The main motive for carrying out this reform now is to finally close the issue of funded pensions, he believes. Given the general background in the economy and politics, it will not cause much resonance, although it would have been difficult to pass the law a couple of years ago, Yemelyanov added.

The issue of citizens’ participation in the formation of their pension assets on a voluntary basis is quite complicated, and in the current conditions, the challenges facing legislators seem even more serious, Fiveyskaya believes. With a slowdown in the economy and a decrease in income, the opportunities for pension savings are somewhat limited in any case, and the development of the pension system and its improvement are closely interconnected with the macroeconomic situation in the country, she noted. The government has long been talking about the fact that the state pension will be small and the population needs to save additional funds, but there should be an attractive opportunity for such savings, the expert pointed out. As part of ensuring the competitiveness of pension products, the possibility of tax preferences for NPF clients, as well as the guarantee of these funds, whether the Ministry of Finance will offer new tax breaks or other incentive measures, is already difficult to predict, she added.

The proposed changes in the system of pension savings should be targeted at the wealthiest Russians and employees of large companies, Tabakh said. The reform will be of interest to approximately the same narrow audience that previously participated in the pension co-financing program (the admission of new participants ended in 2014), the last year of contributions for which will be 2023, Yemelyanov believes. In total, up to 14.5 million people took part in it, that is, they themselves additionally transferred money for a future pension, having received a financial bonus from the state, up to 14.5 million people, the expert noted.

As the Central Bank pointed out in the September review of key indicators of non-state pension funds, the number of participants in the voluntary pension system has been growing over the past seven quarters and at the end of Q2 2022 amounted to 6.2 million people.