Yuri Gorlin: "Those who participated in the earnings-related pension system lost’’

One of the most high-profile statements made yesterday at the Moscow Financial Forum was the announcement by the head of the Ministry of Finance, Anton Siluanov, about the preparation of the new pension reform, which will provide a more advanced and guaranteed voluntary retirement savings system. According to the minister, there will be no ‘defrost’ of the current system of contributions to the funded part of the pension. Vestnik Kavkaza spoke with the deputy director of the RANHiGS Institute for Social Analysis and Forecasting, Yuri Gorlin, on the pension problems of modern Russia.

- In your opinion, how well has the earnings-related pension system worked over the past years?

- Unfortunately, we do not have the conditions so that people can save something in the long term and in mass, but not individually. Experience shows that there is a crisis once every 5-7 years, because of which the accumulations become more or less worthless. That is the way the whole infrastructure of the economy and financial markets work, and there are very limited opportunities for long-term savings. Let me remind you that we already had experience of compulsory pension savings, when the yield was almost two times lower than inflation, ie in real terms, money devalued.

It should also be borne in mind that people have actually very limited opportunities for savings, because most of the population has no savings. Besides, it is one thing when there are compulsory savings and money is allocated not by the people themselves, but by the organizations in which they worked; and quite another thing when a person chooses participation in an earnings-related pension system, considering that it is more appropriate than a distributive pension. I do not know whether they made a mistake or not, but experience shows that those who participated in the earnings-related pension system lost out to those who were in the distributive one, at least for the past 11 years. The cumulative contributions are net of the distribution system and compensated for by transfers from the federal budget – and as soon as the budget problems began, funding ceased. This has been happening for three years already.

- In your opinion, are Russians ready to participate in future in a voluntary pension savings system after such a negative experience?

- I have great doubts that people will participate in pension savings on a voluntary basis. Let me remind you that we had a co-financing program, when people put up to 12 thousand rubles a year, and the state also gave 12 thousand rubles, that was, in fact, a wholly-stage return. A year before the termination of the entrance into the program, about 1 million people were participating in it. Only when it was announced that the entrance into the program would be closed did the number begin to increase and as a result became 2.5 million people. However, the amount of savings in the 8 years of existence of the program per one participant was only 18 thousand rubles, which corresponds to pensions of about 75 rubles per month. That is, even with such a comfortable environment, a small number of people wanted to participate in the pension accumulation, and even less money was accumulated. I do not know what has to happen now for people voluntarily to want to allocate money for their retirement.

- What tools can the state offer objectively to Russians for providing their older years?

- The most simple tools are deposits and investments in real estate, although this is a rather narrow segment. There are investment accounts that have a preferential tax system. Of course, the financial authorities are not satisfied that all of these instruments are relatively short: they would like to see a person holding money on deposit for a long time, roughly for 30 years. As a rule, especially in the Russian context, liquid financial instruments are more profitable. Conventionally, the situation has changed, a citizen withdrew rubles from his account, bought dollars or took money for treatment. Offers about the possibility of spending savings on urgent needs were sounded, but it is likely to be limited – the authorities need the money for a long time to create an investment of these resources.

In this case the problem is not that there is no money. If Russia had projects with an acceptable level of risk and return for the investor, the money would be found. In the West money is very cheap right now, the rates are close to zero, so that despite any sanctions, it would have been found at an acceptable level of profitability and risk for investment. The yields in Russia are quite high, but the risks are high as well, and therefore, there are long-term investment problems. If in such a situation the pension funds are be invested in long-term investment, therefore they will appear in the non-market balance of risk and return, that is a loss for pensioners.

- In your estimation, how long will it take to upgrade the earnings-related pension system?

- So far no one has officially renounced the currently exciting mandatory earnings-related pension system. The government has not taken any decision, still it is only a moratorium on the pension savings in 2017. The savings, which already exist continue to operate with a certain level of success in the private pension funds and management companies, contributions are not made. The way the already made payments work, the way the investment income from them is related to inflation, is a separate issue. This year, perhaps, it will be a little better, as the market has grown and the yield is likely to be more or less acceptable due to the low base. In general, during this period the Ministry of Finance changed its attitude to the current earnings-related pension system, because the budget has no money to finance the accumulative part of it. However, the Ministry of Economic Development claimed to allocate 1% to the savings, so for the moment there are different points of view on this problem in the government.