Russia Extends Hold on Pension Savings for Budget Through 2015

Russia’s government extended a plan to keep hold of pension savings through 2015, diverting the cash to the budget and sparking concern that the move will choke investment.

A moratorium on privately managed pension savings will stay in place next year, with contributions transferred to the pay-as-you-go pool, according to Labor Minister Maxim Topilin. The ministry is concerned the poor performance of the savings part harms Russians’ rights to pensions, he said in a statement.

The government is considering scrapping the mandatory savings portion and moving to a voluntary system, Deputy Prime Minister Olga Golodets said yesterday in Voronezh, Russia.

“I’m definitely disappointed, not because of the money, but because the pension system is collapsing and turning from market-based to planned-economy,” Konstantin Artemov, a money manager at Raiffeisen Capital in Moscow, said by e-mail. “I’m disappointed the government isn’t able to cover budget gaps in other ways.”

Before the government’s decision, the Finance Ministry estimated that non-state pension funds may collect 900 billion rubles ($25 billion) next year and invest 700 billion rubles of that in corporate securities, the Interfax news service reported Aug. 4, citing an unidentified ministry official. Without that spending, the $2 trillion Russian economy may expand 1 percent next year, compared with forecast growth of 2 percent, according to Interfax.

Slowing Growth

The government predicts growth will slow to 0.5 percent this year, the slowest since 2009, after avoiding a technical recession last quarter. The average yield on Russian corporate ruble debt rose to 10.33 percent, according to the UralSib Capital index.

Golodets said 280 billion rubles initially intended for non-state pension funds next year will be diverted, without disclosing where the funds will go. Non-state pension funds haven’t provided a significant boost to the economy, with returns averaging 4.7 percent, below the inflation rate, she said.

Russia barred non-state pension funds from getting new contributions this year until they re-register as joint-stock companies and join a new insurance program. The decision to move pension savings into the pay-as-you-go pot is saved the budget 243 billion rubles in 2014.

The plan for a one-year moratorium on pension savings wasn’t an attempt to confiscate them, President Vladimir Putin said in October. The funds were channeled to support Crimea, which Russia annexed from Ukraine in March, and for anti-crisis measures, according to Finance Minister Anton Siluanov.

“All other things being equal, this may increase the cost of borrowings for Russian companies and banks by 30 to 70 basis points,” Dmitry Postolenko, money manager at Kapital Asset Management in Moscow, said by e-mail.

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