Russia's Central Bank preparing for rehabilitation of pension funds

Russia's Central Bank plans to develop a mechanism for the rehabilitation of non-state pension funds (NPFs), First Deputy Governor of the Central Bank of Russia Sergey Shvetsov said on the sidelines of the Finopolis forum.

He stressed that the financial regulator should have crisis management tools.

"It is another matter whether they will be useful or not. If a country has an army, it does not mean that it will be at war, but the bigger its army is, the less likely it will be at war. The extra leverage for the regulator is the ability to provide financial stability," the first deputy chairman of the Central Bank noted.

At the same time, Shvetsov added that he does not see the need for rehabilitation of non-state pension funds.

According to him, first, there is a guarantee system, second, the system of a five-year investment horizon protects the funds from temporary losses, which can be compensated by future incomes, Kommersant writes.

The vice-rector of the Academy of Labour and Social Relations Alexander Safonov, speaking to a correspondent of Vestnik Kavkaza, noted that the need to rehabilitate part of non-state pension funds is already emerging. "In Russia, there are state pension funds that are part of financial groups. There are very few independent funds or those working in industrial groups. And it is natural that state pension funds are held hostage by the financial policy pursued by the head bank," he explained.

"If a bank loses its license and closes its activities, it falls under the bankruptcy law. State pension funds are in a more difficult situation here, since their participants  are protected only to the level of the main body of the deposit, and all investment income is lost. Since it is about long-term investments, it turns out that a person loses the income accumulated for 10-20 years. So the question arises of why did the Central Bank start to plan it? Is it possible that after a certain period of time state pension funds will have nothing to give as they lost their investment income and became, in fact, bankrupt to investors?" Alexander Safonov said, adding that about 50% of state pension funds are currently experiencing problems due to the difficult situation on the financial market.

According to the expert, Russia's Central Bank may apply the experience of rehabilitation of Otkritie and Binbank to state pension funds. "If a bank is rehabilitated, its structure partners and creditors, should be rehabilitated automatically. The Central Bank will have to think about where to take the money to close these holes. A rehabilitation also implies more tight control over asset management. Thus, there will be two directions: financial support, either in the form of loans, or several funds under threat of bankruptcy will be merged into one state pension fund. And the process will be tightly controlled by the interim administrations," the vice-rector of the Academy of Labour and Social Relations concluded.