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Private funds tackling growing pension woes By:
Irina Sandul
Yelena Yelmanova, a manager’s assistant at a travel agency, is at the full bloom of her early 20s, and the question of what she will live on when she retires puzzles her. She, like most other people in Russia, is guaranteed a miserable state pension. She will probably still have to work once she reaches retirement age, she says. Despite this, Yelmanova will likely deal with a state pension fund rather than a private one, which is something she knows little about. "Though it’s a difficult question," she says. "Probably in a while, I would answer this question differently." There are more than 400 registered non-governmental pension funds (NGPFs) in Russia, according to the National Association of Pension Funds (NAPF), but in reality only 236 of them operate. Tatyana Bakuleva, deputy head of Nizhny Novgorod-based Doveriye Fund, is convinced the state is not giving enough support to the NGPFs’ development because it just does not want to give away a tasty morsel. "There is literally a fight between those who own large flows of uncontrolled money," she said, speaking of the State Pension Fund, one of the richest enterprises in the country. The State Pension Fund’s Director Mikhail Zurabov, however, argues the non-governmental funds do not develop as fast as they could have because "at present state guarantees are more preferable for people than private ones." He said at a press conference Monday that, though NGPFs guarantee 20 percent profitability, they bring along various risks. The state fund’s profit is only 8 percent, but risks are minimized, he added. According to the new legislation, as of 2004 people can start paying 4 percent of the 28 percent tax they are currently obliged to pay to the state pension fund to private funds. In 2006 they will be able to transfer as much as 6 percent to the non-government funds. Zurabov also said that after 2004, investments would be made in non-government funds. At present the Pension Fund has begun investing money in state bonds only. "When the level of financial services and guarantees will be such that risks will disappear or be acceptable, we will be able to decrease the state’s participation [in pension funding]," he said. "Our task is to provide [conditions] that will make [people’s] choice the most democratic one because the state will have to pay" for the wrong choice. Bakuleva said state officials often create the impression that people trust state funds more. They do it "exclusively out of fear" that people might switch to private funds, she said. She thinks that, on the contrary, the state is the one people should not trust. "There is no confidence that the new Duma will not change all the laws. But pension funds cannot tolerate drastic changes," she added. Bakuleva also said that the flaws in the present legislation leave too many potholes for private corporations who are their main sources of income. Other industry insiders agreed. "Private businessmen do not want to doubt the correctness of the [tax code’s] treatment," Bakuleva said. "This costs them a lot." Yury Korolykov, deputy executive manager of St Petersburg-based Sberegatelynyi Fund, said another spoke in the wheel is that pensioners in Russia are viewed as "poor and helpless." Olga Plotnikova of Moscow-based First National Fund, the first non-state fund to start operations in Russia, said that though non-governmental pension funds have not "ever tarnished their reputation," many people often associate them with commercial banks, some of which swallowed people’s entire life savings as they went under. She said that First National, which has been on the market for 10 years, pays out roughly two million rubles monthly to 9,189 pensioners. She said they never ask their customers about their sources of income. Korolykov said that the average pension his fund pays out is 250 rubles ($8) but pensions can also reach 5,000 rubles ($170). Bakuleva said her fund pays out pensions of 330-2,000 rubles ($30-$67) a month. If 30-year-olds start paying deposits to their fund in 2004, as the new legislation allows, they will get a monthly pension that will equal in size with their present monthly salaries by the time they retire, she explained. Bakuleva said that half of the fund’s clients are people aged 45-50, 30 percent are around 30 years old and 20 percent are people over 60. "We are interested in young and middle-aged people. If they learn how to work with investment funds, they will decide where to keep their money in 2004," she added. Bakuleva herself is a client of her fund. She hopes she will get an additional 600 rubles ($20) to her 1,000 ruble ($33) state pension when she retires five years from now. Plotnikova believes NGPFs in Russia will get wide recognition within the next 10 years. "At least one generation of people has to grow," she said. By then Yelamanova will probably have a better idea of whom to trust in her old age. FAIR USE NOTICE: This page contains copyrighted material the use of which has not been specifically authorized by the copyright owner. Global Action on Aging distributes this material without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. We believe this constitutes a fair use of any such copyrighted material as provided for in 17 U.S.C § 107. If you wish to use copyrighted material from this site for purposes of your own that go beyond fair use, you must obtain permission from the copyright owner.
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