In a front-page story, Vedomosti reports that the social block of the government has proposed channelling all inflows to the funded part of the pension system (pension savings) to cover the PAYG funding gap next year. The initial plan was to keep all incoming pension savings inflows in VEB during the transition period (1-2 years) when Private Pension Funds (PPFs) are to undergo a comprehensive audit by the CBR. The government is to debate the initiative this Thursday.
The amount of pension savings is likely to total around RUB 250bn next year, which is only 10% of the overall funding gap of the PAYG system. Moreover, given the temporary nature of these inflows (one or two years while PPFs are being audited), the solution is not sustainable and might ultimately result in an even bigger funding gap of the PAYG system. Apart from the questionable fiscal considerations, this initiative could further erode people's belief in the savings pillar and the credibility of the government’s policy making in general. Hence, we do not think that this proposal is likely to be approved.
Vladimir Kolychev, Daria Isakova
VTB Capital analyst
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