Yesterday, First Deputy Minister of Finance Tatyana Nesterenko announced possible changes in the choice parameters relating to households’ decision about whether to leave the full 6% of social tax in the funded pillar of the pension system or to reduce it. Thus, if households previously had to decide whether they to contribute 6% or 2% into the funded pillar of the pension system, now the choice might be between 6% or nothing.
Nesterenko added that since 44% of pensioners prefer to remain in the funded part, the newly proposed measure might add some RUB 350bn of additional revenues to the State Pension Fund in 2014-16.
Moreover, Deputy Minister of Finance Alexey Moiseev commented that this decision had been approved by the government.
By the end of 1H13, households had RUB 888bn of mandatory pension savings in private pension funds (having added one third in 1H13), while RUB 1,709bn remained in VEB. Were the funded part to be removed completely, that might trigger more active migration of 'molchuni’ (people who have not decided so far, and so are by default in VEB) to NPFs. Nevertheless, we believe that this would lead to lower contributions to the funded part than in the previous scenario. So, on the one hand, the State Pension Fund will likely gain more revenues (RUB 350bn over the next three years), but on the other hand the economy will lose the same amount of long-term money.
That said, we believe that the volume of the transfer to the Pension Fund will depend on the pension indexation scheme, as the revenue side of the State Pension Fund will likely be under pressure due to the gradually cooling labour market (higher unemployment and lower nominal wages (the tax base for social taxes)).