According to Andrew Isaev, head of Duma’s committee on labour, social policy and veterans, the committee pledged support for the government’s position on pension reform, including a cut of contributions to the funded part from 6% to 2%, beginning next year. This decision was taken as an amendment to a draft of the Pension Fund Budget for 2013-15 (which is to be considered by the State Duma in the second reading on 16 November) and acts of law over mandatory pension insurance.
We believe that the recent news is making a cut in contributions to the funded part of the pension system more likely. If the amendment to budget will be approved this week, the act will come into power beginning with January, 1st of next year. We treat this change as a hidden increase in taxation, as roughly 0.4% of GDP will not go to personal savings accounts and will be used as a funding source for current spending. This year, VEB invested the majority of new savings in bank deposits and corporate bonds, thus less inflow of funds next year will put additional pressure on banking system funding and make corporate bonds a more expensive funding source. We believe that the cut in the funded part contributions will result in lower investments, beginning with next year, and a lower GDP path in the medium-tolonger term. Under our base case scenario (Brent at USD 95/bbl), we expect next year’s GDP growth to reach just 2%, with investments declining by 2%.