Olga Trubach from our Network Partner in Russia, Rosgosstrakh, inform about the latest changes of the Russian pension system. Rosgosstrakh was founded in 1921 and offers a full range of solutions and services for life and health cover and is. The Rosgosstrakh Group of Companies (RGS) operates 3’500 regional branches in Russia employing more than 100’000 staff.

Russia’s biggest ever pension reform began in 2002. This was designed to gradually replace the old pay-as-you-go defined benefit system with a mixed structure comprising a pay-as-you-go first pillar and a mandatory funded second pillar, with pension amounts based on actual earnings and the employer’s contributions to the State Pension Fund (social taxes) rather than on length of service, as previously.

Within ten years of the reform, the Russian pension industry had grown to include the State Pension Fund of the Russian Federation (NPF) and 118 non-state pension funds (NSPFs). Every employee had the right to decide if his or her contributions should go to the NPF or an NSPF. Approximately 77 million people were enrolled for the second pillar in the State Pension Fund, and over 22 million had second pillar accounts in an NSPF. Over the years, non-state pension funds actively offered group pension plans to corporate clients. In 2008, nearly 6.8 million people were in pension programmes offered by non-state pension funds – although this figure has not risen much since.

However, criticism of the mandatory second-pillar pension system and financial problems leading to a rising deficit in the State Pension Fund’s budget led to the decision to at the end of 2012 to launch another far-reaching reform of the pension system.

New three-level structure

This saw the creation of a new three-level pension system made up of a state pension (first and second pillars), corporate pension, and private pension. Contributions to the second pillar became voluntary. Russian citizens could choose an asset management company or a non-state pension fund for this, or their contributions could be directed to the first pillar State Pension Fund. All participants in the second pillar system had to choose whether to keep their second pillar account or release it by December 31, 2015. The formula for calculating the pension amount was also modified to take into account not only the social taxes paid by the employer, but also length of service and retirement age.

Greater transparency, obligatory guarantee system

The reform impacted the entire non-state pension fund market. All non-state pension funds were forced to convert to joint-stock status to ensure a more transparent ownership structure, receive accreditation from the Bank of Russia (the central bank and pension’s regulator) and sign up to a guarantee system by the end of 2015. New requirements imposed on non-state pension funds (most of which were non-profit organizations with complex ownership structures) were supposed to make second pillar management more transparent.

Second pillar freeze

However, a recent report from the Auditing Chamber of the Russian Federation has led to suspicions that the reorganization is in part motivated by the wish to keep second pillar funds in the State Pension Fund for more years. To balance the state budget, the government froze pension fund transfers to the second pillar pension and allocated them to the first pillar, so the State Pension Fund deficit was covered for 2014-2015. In October 2015, the head of the State Pension Fund announced that this would be done in 2016 too. Nevertheless, President Vladimir Putin has affirmed many times that the second pillar pension will be preserved as a component of the Russian pension system.

Market restructuring

The strengthening of state control over non-state pension funds, and the freeze in contributions to the second pillar, have led to restructuring in the pension industry. Only 32 non-state pension funds have become members of the guarantee system, and at the end of October 2015, the number of non-state pension funds allowed to provide second pillar services dropped to 79, with the total number of non-state pension funds now at 110. Some non-state pension funds have been put up for sale. All the foreign-owned pension funds have left the market. «Raiffeisen» — the last non-state pension fund with foreign ownership on Russian market – announced the shift of shareholder on October, 19, year 2015. Groups ING, Aviva, Allianz and Generali had left Russian non-state pension funds market earlier, as have many small local companies.

What is happening to the corporate pension plan market? These programmes are recognized not only as a key part of HR management, offering support for personnel motivation and retention, but also as a cost optimizer, since employers’ contributions to pension plans offered by non-state pension funds are exempt from social taxes up to 30% and reduce the income tax base (20%). Today companies looking for corporate pension plan administration tend to focus on large non-state pension funds with a clear and transparent ownership structure.

OJSC NSPF RGS – Swiss Life Network Partner

OJSC NSPF RGS is one of the leading funds with successful experience of developing and implementing corporate pension programmes. The fund is a member of the Rosgosstrakh Group, a Swiss Life Network Partner, and has been offering its services since 2003. Through years of its history the Fund became one of the leading participants of pension industry. OJSC «NSPF RGS» is the third largest market leader (by number of insureds in 2015), TOP-1 for new customers engagement (as per results of years 2012, 2013), TOP-4 as per second pillar funds (as per results of 2Q 2015), TOP-7 among market leaders as per proprietary assets volume (according to results of 2Q 2015). The fund is a member of the pension guarantee system. In 2015, the Expert RA rating agency gave the fund its highest reliability ranking: A++ (exceptionally high reliability). The National Ranking Agency awarded the fund its top reliability level: ААА.

Excellent service to its clients is supported by the fund’s availability in every part of the Russian Federation, with 66 branches and over 3000 locations. The fund provides corporate pension programmes for Russian and foreign companies, as well as state-controlled companies, and has exceptional experience of adapting employee compensation packages for global corporations in compliance with the law.