Russians to Pay 1 Trnl Rubles for Their Voluntary Pensions

Russians to Pay 1 Trnl Rubles for Their Voluntary Pensions
Russians are expected to bring almost 1 trln rubles into the new system of voluntary pension funds (the guaranteed pension plan (GPP)) in the first year after its launch. This target parameter has been proposed by the Ministry of Economic Development in the draft action plan of the government commission for economic development.

By 2024, the plan presupposes an increase of the pension contributions already accumulated in the system to up to 3 trln rubles. In 2021, it is planned to attract about 1 trln rubles, and a year later to boost them up to 1.54 trln rubles. According to the projections of the Ministry of Economic Development and Trade, the annual inflow of funds to the GPP will amount to 0.6-0.8 trln rubles.

At the same time, the salary fund of the working population will be expected to grow by 4.6 trln rubles in 2022-2024. According to the ministry, Russians will voluntarily pay 2-2.3 percent of their salaries to the GPP. At the same time, experts believe that the figure of 1 trln by 2021 is overestimated. There are several reasons for this. First, as the summer survey has shown, almost two thirds (63 percent) of Russians would prefer to stay away from making any additional contributions to the national pension funds. Only 29 percent of respondents said they would agree to pay more money from their income.

While talking about the upcoming pension, the surveyed Russians (66 percent) believe that government payments will be their main source of income after they retire. Only 7 percent of respondents will bank on additional pension payments from a non-governmental pension fund or a commercial organization.

Secondly, as experts say, the majority of Russians do not have incomes of the size that enable them to save money for the guaranteed pension product. Such income does not exceed 10 percent of the economically active population. As a rule, they have been either already involved in corporate pension programs or have used other instruments to manage their financial assets.

Earlier, the media reported that more than a third of the GPP can be filled up by public sector employees. Experts believe that this initiative will be efficient only if the officials are involved in the system. According to the experts, state co-financing might be an additional motive.

Recall that the Ministry of Finance and the Central Bank worked together on the new funded pensions system - the guaranteed pension plan (GPP). The law on the GPP is expected to be adopted by the middle of next year. The main goal of the new plan is to provide Russians with an opportunity to save money with the aid of their personal contributions from the salaries to the Pension Fund.

A number of benefits will help attract people to the GPP. Thus, employers will be able to reduce the income tax base for co-financing their employees’ savings. For this purpose the personal income tax base will be reduced for employees.

The voluntary nature of participation in the new plan is supposed to be its main advantage. However, experts noted that this is also its main drawback of the system. The thing is that Russians do not trust the authorities. One of the reasons for it was, for instance, the freezing of pension savings as of 2014. Recently, it was extended through to 2022. According to the authorities, this decision will reduce the transfer to the budget of the pension fund of the Russian Federation by another 634.8 bln rubles.