RUSSIA - Russia's October deadline for individual workers to choose a pension fund manager for the funded portion of their pension savings is rapidly approaching - yet the final list of managers is yet to be decided.
Opinion polls show only around 5-7% of the public will choose the private fund manager route. The vast majority of the population will either choose to leave their money with the State to manage, or not make any choice, by default leaving the assets under State management.
Two kinds of organisation are eligible to manage pension fund money: a non-state pension fund and an independent management company. The ‘trustees’ of the non-state pension funds have the discretion to manage the assets directly (sovereign debt only) or delegate to independent management companies.
The direct management of pension assets by independent management companies are via a mutual fund type vehicle. A tender is currently underway to approve around 15 non-State management companies out of some 30 eligible. A number of non-State pension funds will be authorised to manage pensions assets, giving individual workers the choice of around 20 institutions.
At a later date it is anticipated that the so-called ‘captive companies’ which manage pension assets for the big corporates will also be given the right to manage money for the wider population.
But with a date of September for the eligible list of management companies and non-State pension funds to be finalised, it is questionable whether the October deadline is feasible.
“By the time the tender is over the Russian postal system has to take on a mailing to 40 million people,” said Oleg Lebedinets, an analyst at Brunswick Asset Management Research in Moscow.
“After employees have received it they will have to fill it out and return it. Estimates are the bulk of employees will not bother replying and it will be classified as money which will be managed by State agencies.”
Lack of awareness of pension reform is a huge hurdle to overcome to encourage take up of the private pension option. “Pension reform and its benefits for employees is very poorly advertised,” said Lebedinets.
“That is why we expect a low proportion of employees will participate in the non-State companies. Increased advertisement complemented by consistent returns would raise the awareness of people that it’s better to give money to non-State pension funds rather than State agencies.”
The Russian government has just approved limits for asset allocation for assets managed by independent management companies. From 2004 the upper limits will be 40% in government sovereign bonds and mortgage bonds, 40% in equities and 50% in corporate bonds.
However, it is anticipated that the non-State pension funds would be able to invest up to 80% of total assets in equities, sovereign bonds and mortgage bonds; up to 50% of assets could be allocated to municipal securities and up to 20% may be invested in foreign assets.
In 2002 the assets managed by the State pension fund amounted to US$1.2bn.
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