Does Russia need new pension system?

The Central Bank of Russia is developing a new pension support system, which will be an alternative to existing methods of calculating pensions.

"We are trying to develop an alternative that will be less costly for the budget, but no less efficient from the standpoint of the amount of raised funds of the population for further increase of the replacement ratio," the First Deputy Governor of the Central Bank, Sergey Shvetsov, said.

He added that the new system will not be fully voluntary.

The Deputy Director of the Institute for Social Analysis and Forecasting at the Russian Presidential Academy of National Economics and Public Administration, Yuri Gorlin, noted in an interview with Vestnik Kavkaza that "the competence of the Central Bank is linked only with the management of pension funds, so it is hardly their prerogative to talk about the development of the entire pension system."

"As for the funded part, the stocking system in the framework of mandatory state pension provision did not meet expectations. It did not provide the full security of the money. There are problems with the profitability of pension savings. In fact, there are more profound reasons to even talk about how effective funded schemes can be in general," he said.

"From my point of view, it is necessary to withdraw the stocking component from the pension system. If the people want to save up, it will become their risk, their liability. The whole of society will not be responsible. Because now it turns out that, as in the case of Motylev banks, the damage will be also covered at the expense of the Central Bank, that is, as if the entire population would be charged for some hidden emission tax," the expert stressed.

"So I do not know how effective this stocking system is. Especially since the Central Bank cannot provide sufficiently effective monitoring to avoid such cases. We see that several banks have lost their licenses. And all this was covered at the expense of public funds," Yuri Gorlin concluded.

The head of the Scientific Research Financial Institute of the Ministry of Finance of Russia, Vladimir Nazarov, in his turn, said that Russia's pension system in its current form corresponds to relevant requirements.

"When it comes to the stocking component, then I believe that there is a need to stop freezing contributions to the stocking component. This need is long overdue. And the Central Bank is carrying out scrupulous work to create a system to guarantee pension savings. The market is becoming more civilized, and the Central Bank started to regulate it more or less qualitatively," he said.

"Yes, probably it's worth mentioning that we can improve the quality of the management of pension funds, mainly due to the compulsion of pension funds to use passive investment strategies. This allows, firstly, to drastically reduce the costs on management, so pension funds will be much cheaper for us. And the second bonus is that only a few can beat the market in long time intervals. When you're young, you can invest in exploratory assets, stocks. When you are close to the pension age, you should invest in more conservative securities, bonds, deposits," the expert added.

"Otherwise, the discussion about whether it should be mandatory or voluntary is premature. When it will be working for already 10 years, then you can discuss this. But so far they only decide on a permanent freeze, which, of course, discredits everything," Vladimir Nazarov summed up.