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PRIVATE PENSION FUND AS AN ALTERNATIVE SOURCE OF PENSION
PROVISION
Yakovleva M.O., student
Financial University under the Government of the Russian Federation, Moscow, Russian
E-mail: rita_yakovleva00@mail.ru Supervisor: Obukhova L.Yu., Senior teacher Financial University under the Government of the Russian Federation, Moscow, Russian
E-mail: lora.yur@mail.ru
Abstract: The article is devoted to the research on the activity of non-pension funds in the Russian Federation and the influence of the recent pension reform on them. It also highlights the principles, features and the mechanism of NPFs. The statistics reported by the Central Bank ofRussia helps a depositor to choose NPF, which is the most appropriate for his goals. The given analysis provides the reader with information about the most reliable and profitable funds in the Russian Federation. A special attention is paid to legislative base of NPFs and their activity, to clarify the pros and cons of this kind of investment.
Key words: pension provision, non-government pension fund, investment
НЕГОСУДАРСТВЕННЫЙ ПЕНСИОННЫЙ ФОНД КАК АЛЬТЕРНАТИВНЫЙ ИСТОЧНИК ПЕНСИОННОГО ОБЕСПЕЧЕНИЯ
Аннотация: Статья посвящена исследованию деятельности негосударственных пенсионных фондов в Российской Федерации и влиянию недавней пенсионной реформы на них. В ней также освещаются принципы, особенности и механизм действия НПФ. Статистика Центрального банка России помогает вкладчику выбрать НПФ, который наиболее соответствует его целям. Данный анализ предоставляет читателю информацию о самых надежных и прибыльных фондах в Российской Федерации. Особое внимание уделяется законодательной базе НПФ и их деятельности, выяснению плюсов и минусов данного вида инвестиций.
Ключевые слова: пенсионное обеспечение, негосударственные пенсионные фонды, инвестиции
1. INTRODUCTION
The recent pension reform in the Russian Federation, which was initiated by Federal law №350, adopted in 2018 presuppose such changes: gradual increase in the retirement age from 2019 to 2028, early receipt of payments for certain categories of citizens, the freezing of indexation, raising the age of eligibility for social benefits and saving rights to the accumulative part. Undoubtedly, this reform has a number of positive consequences, for example, reducing the deficit of funds in the Pension Fund of the Russian Federation and their corresponding increase in the Federal budget, increasing monthly payments by an average of 1000 rubles. However, the negative sides prevail over its positive results and are expressed in a decrease in real incomes of the population; a reduction in consumer demand; an increase in the number of citizens who did not achieve the retirement age due to their early death. On the other hand, an increase in state spending on the retraining program. These facts make us begin thinking about the future and consider the possible options which allow to save for retirement [1,7].
2. ANALYSIS AND RESULTS
One of these alternatives is a private pension fund - an organization, which will provide us with additional pension payments on condition that we make regular contributions to it in advance. The activities of the NPF are mandatory pension provision (OPS), non-state pension provision (NGOs) and professional pension insurance (PPP) for mandatory pension insurance, as an example [8].
The mechanism of non-state pension provision, which will be discussed further in this article, in Russia includes the following steps: accumulation of pension contributions, investment and distribution of income and direct payment of pensions to depositors. This type of activity is carried out under agreements on NGOs, under the terms of which depositors, both legal entities and individuals, pay pension contributions. These pension contributions are invested and when the insured person officially ends his or her working life due to the age, an additional non-state pension will be assigned to him or her.
Principles of activity of the NPF are that the NPF is a non- profit organization, so its founders can never
receive a profit from its activities and, due to the Federal law about NPFs, it is not allowed to invest more than 30% of the allocated reserves in securities issued by the founders. Moreover, NPF investments are always safe, as its activities related to investing pension savings are subject to risk restrictions. For example, it can invest only an amount that does not exceed 10% of the reserve funds in facilities where the risk of losing money exceeds 50%. If the risk of loss is in the range of 25% -50%, the NPF can only invest up to 20% of the reserves. Furthermore. It is the responsibility of the NPF to prepare and send reports to the inspection on the investment activities carried out by Bank's of Russia financial market service. The last but not the least principle of NPF is that no third parties or the state have the right to become owners of the Fund's pension savings, even in the situation of bankruptcy [4].
This mechanism of NPF has a number of advantages over the other types of investment: the ability to receive a pension from several NPFs, protection from adverse state pension reforms, regulation of the NPF by state, tax incentives, investing only in reliable assets, separate storage, accounting and use of the fund's assets, the ability to transfer assets by inheritance. First of them is that NGO is available to a person, even if he has never worked, which is very important for people who do not have sufficient experience (15 years) and who only receive a "social pension" in the approximately amount of 3,631 rubles. Moreover, pension contributions to the NPF can be made by the policyholder, as well as by the spouse, children, relatives, and the employer. Therefore, an NGO is not an alternative to "state pensions": only the funded part of the pension is formed from contributions to the NPF. Two other parts of it (the basic part is guaranteed to everyone, paid from the Federal budget, and the insurance part - it depends on the insurance experience and the size of the person's salary) remain unchanged. Another advantage of NPF is that the funded part of the pension can be inherited unlike the insurance part and it is not used to pay current pensioners. Moreover, in NPF you can choose your own pension amount, as well as the period of its receipt - a certain number of years or
lifetime payments, to create your own individual schedule for accumulating and receiving the funded part of the pension [2, 4].
Among the disadvantages relating to investing savings into non-state pension funds, we can mention: economic instability and weak long-running forecasts, low investment returns as well as the impossibility of early withdrawal of accumulated capital. Also the fact that the transfer of monetary savings to a non-state pension Fund made at the expense of the depositor can be regarded as drawback. Another disadvantage is the lack of stable income, which is due to the fact that the NPF can not be confident that the financial year will be successful. Moreover, the revocation of a license from a nonstate pension Fund can be a minus of NPF, so in this situation, you need to transfer your savings, which is associated with certain monetary costs. Furthermore, there are a large number of scammers working under the cover of allegedly existing NPF, who try to deceive people in the most sophisticated ways using that way. Another disadvantage is the continuous innovation and transformation of the pension savings system, so periodic innovations interfere with the planned development of the NPF, which affects the services of the users [1].
The next aspect that I want to highlight in this article is the legal framework of the non-state pension Fund. It may be created in the legal form of a joint-stock company and may not perform operations with bills of exchange or issue loans. Moreover, the minimum amount of the Fund's authorized capital from January 1, 2020 must be at least 150 million rubles, and the minimum amount of the Fund's own funds from January 1, 2020, set by the Bank of Russia, must be at least 200 million rubles.
The law "on non-state pension funds" provides for the construction of a multi-element system to ensure the reliability of NPF: guarantee funds and insurance, audits, regulation of the placement of pension resources, state control and other measures. Moreover, the Bank of Russia performs Supervisory functions in relation to the NPF, such as: requesting and receiving information about the financial position and business reputation of the organization; supervising individuals
and legal entities that make transactions for the purchase of shares of the Fund, etc. [3].
NPF is also subject to a number of investment restrictions, namely that pension savings funds can only be invested in: government securities of the Russian Federation and its constituent entities; bonds, shares, and units of mutual investment funds of Russian issuers; mortgage-backed securities; cash in rubles in accounts with credit organizations; deposits in domestic and foreign currency; foreign Table 1. Rating for TOP1Q Russian
currency in accounts with credit organizations and securities of international financial organizations.
Currently there are various ratings for non-state pension funds in Russia depending on profitability, reliability of savings, the number of insured persons and the volume of savings, which can help the depositor to choose the most appropriate option. Ones of the most famous of them is the NPF rating published annually on the website of the Pension Fund of the Russian Federation. rs in terms of reliability in 2019 [10]
NPF Rating of the Expert RA Agency Date Forecast
JSC " NPF Gazfond Pension Savings" ruAAA 2019-06-05 Stable
JSC "NPF of Sberbank" ruAAA 2019-07-19 Stable
JSC "NPF VTB Pension Fund" ruAAA 2019-03-20 Stable
JSC "NPF Gazfond Pension Savings" ruAAA 2019-06-05 Stable
JSC "NPF National" ruAA+ 2019-12-23 Stable
JSC "Renaissance Pension Fund" ruAA 2019-12-25 Stable
JSC "NPF Alliance" ruAA 2019-06-26 Stable
JSC "NPF Almaznaya osen" ruAA 2019-05-29 Stable
JSC "NPF Society" ruAA- 2019-09-30 Stable
JSC "NPF Big" ruAA- 2019-02-15 Stable
JSC "NPF Khanty-Mansiysk " ruBBB- 2019-07-19 Stable
The indictors of the Rating of the Expert RA Agency decrypt as:
• ruAAA - the rating object is characterized by the maximum level of creditworthiness/
financial reliability/financial stability, highest level credit / financial reliability/financial stability of the software, the Agency believes that the national scale for the Russian Federation is the same;
Table 2. T0P10 Russian NPFs
• ruAA; ruAA+; ruAA- - high level of creditworthiness /financial reliability/financial stability in comparison with other rating objects in the Russian Federation, which is only slightly lower than the rating objects in the ruAAA rating category.
Another kind of rating of the NPFs in Russia is based on profitability of the Russian NPFs. The data in the table are taken from reports from the Central Bank of the Russian Federation. on profitableness in 2019 [11]
NPF The percentage of pension reserves, minus the rewards Percentage of pension reserves before payment of remuneration Percentage of investment of pension savings minus remuneration The percentage of investment of pension savings funds prior to the payment of remuneration
"NPF Professional" 13.73% 15.00% 8.53% 8.53%
JSC "NPF Gefest" 13.03% 13.84% 12.88% 13.54%
JSC "NPF Alliance" 11.81% 11.85% 10.76% 11.53%
JSC "NPF Consent" 11.74% 12.14% 11.31% 11.96%
JSC "NPF" APK-Fund" 11.53% 13.06% - -
JSC "NPF the First Industrial Alliance" 11.12% 11.81% 11.61% 12.29%
JSC "NPF of Sberbank" 10.93% 11.31% 9.89% 10.70%
JSC "NPF of Tradition" 10.91% 11.59% - -
JSC "NPF of Evolution" 10.91% 11.44% 11.66% 12.25%
JSC "NPF Volga- the Capital" 10.78% 11.05% 11.37% 12.33%
Based on the data in the tables above, we can conclude that the average return among all funds for 2019: pension reserves before payment of remuneration is equal to 5.74%, investment of pension savings before payment of remuneration is equal to 7.05%. The most profitable companies are "NPF Professional", JSC "NPF Gefest" and JSC
"NPF Alliance" and the most reliable are JSC " NPF Gazfond Pension Savings", JSC "NPF of Sberbank" and JSC "NPF VTB Pension Fund". This discrepancy gives us a reason to conclude that the most profitable NPFs are not the most reliable and the probability that they may have their license revoked is significantly higher.
JSC "NPF Alliance" JSC "NPF UGMK-Perspektiva" JSC "NPF the Future" JSC "NPF Big" JSC "National NPF" JSC "NPF Transneft" JSC "NPF Gazfond Pension Savings" JSC "NPF Khanty-Mansiysk" JSC "NPF Opening" JSC "NPF of Sberbank"
0
500 000 1 000 000 1 500 000 2 000 000
Figure 1. The distribution of NPFs in Russia based on the quantity of depositors in 2019 [5]
The following graphs display the distribution of NPFs based on the quantity of depositors and amounts of pension reserves and saving, which can be the basis for selection. Due to these data we come to the conclusion that the most popular NPFs are JSC
JSC "NPF Vnesheconomfund" JSC "NPF Federation" JSC "NPF Atomfont" JSC "NPF Surgutneftegaz" JSC "NPF Magnit" JSC "National NPF" JSC "NPF Consent" JSC "NPF of Evolution" JSC "NPF Safmar" JSC "NPF Opening" JSC "NPF of Sberbank"
"NPF of Sberbank", JSC " NPF Welfare", JSC "NPF Opening", JSC "NPF Telecom-Union", JSC "NPF Khanty-Mansiysk", JSC " NPF Gazfond Pension Savings".
0
200 000 000 400 000 000 600 000 000 800 000 000
Pension savings (market value) in thousand rubles Pension reserves in thousand rubles
Figure 2. The distribution of NPFs in Russia based on pension savings and reserves in thousand rubles in 2019 [6].
3. CONCLUSION
To sum up everything mentioned above, I'd like to conclude, that to be well-off in the future, you have to care about it now, make provisions for it and I believe, the best way, of doing it is through NPF. Despite the disadvantages of this investment method, its advantages prevail, so for a successful and optimal way to accumulate reserves for a decent old age, the NPF is an ideal choice. Moreover, it regulates by government structures what also support its reliability. Moreover, the article also gives various ratings to choose the NPF which will be the most appropriate for your purpose.
REFERENCES
[1] Advantages and disadvantages of investing a pension in a
non-state pension Fund. URL: http://posobie-help.ru/pensii/trudovye/plusi-i-minusi-npf.html (Accessed: 10.03.2019)
[2] Essence and mechanism of functioning of non-state pension
funds of the Russian Federation. URL:https://studwood.ru/1172011/pravo/suschnost_meha nizm_funktsionirovaniya_negosudarstvennyh_pensionnyh _fondov (Accessed: 10.03.2019)
[3] Federal law of the Russian Federation No. 75-FZ of 7 may
1998 «On non-state pension funds». URL:
http://www.consultant.ru/document/cons_doc_LAW_186 26/ (Accessed: 10.03.2019)
[4] NPFs: advantages and drawbacks. URL: https://fingeniy.com/negosudarstvennye-pensionnye-fondy-preimushhestva-i-nedostatki/ (Accessed: 10.03.2019)
[5] NPF by number of participants. URL: https://pfrp.ru/npf/uchastniki.html (Accessed: 10.03.2019)
[6] NPF by size of pension savings. URL: https://pfrp.ru/npf/pensionnyye-nakopleniya.html (Accessed: 10.03.2019)
[7] Pension reform-2020: new changes from January 1 and their
features. URL: https://zagorodnaya-life.ru/pensionnaya-reforma-2020-novye-izmeneniya-s-1 -yanvarya-i-ix-osobennosti/ (Accessed: 10.03.2019)
[8] Principles of operation of non-state pension funds of the
Russian Federation. URL:
https://www.papabankir.ru/chastnyye-pensionnyye-fondy/printsipy-raboty-negosudarstvennykh-pensionnykh-fondov/#1 (Accessed: 10.03.2019)
[9] Private pension fund. URL:https://revolution.allbest.ru/finance/00818471_0.htm l (Accessed: 10.03.2019)
[10] The NPF rating in terms of reliability. URL: https://pfrp.ru/npf/nadezhnost.html (Accessed: 10.03.2019)
[11] The NPF rating by profitability. URL: https://pfrp.ru/npf/dokhodnost.html (Accessed: 10.03.2019)
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