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Pension unlocking could free up liquidity for economy
Published: 24 September, 2009, 18:07
Edited: 13 October, 2009, 09:01
TAGS: Investment, Russia and the global economy, Economy, Finance
The Government is looking for funds to kick start the economic revival, with a scarcity of longer term funding options, likely to slow any pull out of recession. That has key players looking at pension funds.
Russian Pension reforms, dating from 2002, have created accumulative pension funds that – by default, if individuals don’t choose a private pension – are managed by Vnesheconombank on behalf of the State.
Over 7 years, only 12% have opted for a private pension – generally managed by private insurers or banks. They are seeing an average 40% growth this year.
When looking to invest these funds, VEB is currently limited to government backed securities, meaning an estimated 15 billion dollars is held back from the economy. Dmitry Korobchenko, Deputy Head of Asset Management at the Bank of Moscow
“Pension fund money is circulating in the economy. I'm talking about the money in private management. There are regulations about how that money can be invested. What per cent can be invested in shares – an aggressive strategy – and in Russian corporate bonds as well as government backed securities.”
More than 60 companies have fund management provisions under official agreements with the government pensions fund. A general lack of financial literacy, skepticism about private providers, and difficult transfer procedures, are limiting both access to the pension funds, as well as future returns for pensioners. Vadim Soskov, CEO of Kapital Investment Group says pensions funds can be more effectively used.
“Foreign pension systems have managed to make it useful for people even before they go on to a pension. They can take loans from their pension money for education, which can lead to a higher salary and therefore a better pension. We also should persuade people to move money into private managment which will be better for them and economy as a whole.”
With the bulk of government reserves already earmarked and the budget looking at some years in deficit, the government has already announced plans for domestic and foreign borrowings. The same driver is also likely to push pension savers to get a better return for themselves, and the economy.
24.09.2009, 13:19
Synergy posts 1H 2009 Net Profit of 512 million RoublesRussian distiller and spirit producer, Synergy, has posted a 1H 2009 Net Profit of 512 million Roubles under IFRS. |
24.09.2009, 19:58
Avtovaz slashes workforce by 25%Russia's largest carmaker, Avtovaz, plans to lay off 27,600 workers in an attempt to stay afloat. |
Who autored this story? It reads as an infomercial for private retirement funds. It contains some very dangerous semi-truths. The 40% increase in the value of private pension plans occured after they lost more then half of their value since the financial crisis. I do not believe that private retirement schemas in Russia outperformed those in the US. Most savers of such funds in US are in dire situation, and those close to the retirement cannot afford to retire any time soon. This creates problems with the employment of young as they enter the market. The growing unemployment is one of the side effects. The truth is, only the traditional retirement systems, not the investments schemas that new systems represent, insure guaranteed income for retirees. While the concept is derided by the private funds, let them explain how the wealthy manages to keep the wealth working for many generations of the family. The same trust funds that are the foundation of the wealth for rich and their offspring, are also good for the traditional retirement system. In that system, "you do not take it with you". Members who pass away, leave their principal to work for the future generation of beneficiaries. In spite of the overwhelming disinformation blitz that the retirement systems with guaranteed income does not work, it is plain not true. It has been proven time and again, that it works in good times and bad. It requires a solid management, but no miracles. Russians have good instincts. And Russia Today can offer perhaps more information on the real world experiences of both, investment schemas for retirement, as well as the trust fund concept of the traditional retirement systems. It would be helpfull to understand both the advantages and the pitfalls of both.
The people making money off of private retirement fund schemes are the tricksters who manage them. It is a mistake to give up a bird in the hand for the promise of a bigger and prettier bird in the bush. Don.t let them sucker you into giving up your guaranteed government pension for a promise of a better private plan. Just ask a lot of Americans that had private plans that lost huge amounts of money. They can be heard complaining now, but while they were investing they were convinced that they were going to make a windfall.