Investing Pension Savings in Russia: Results and Lessons for the Future

Abstract

A mandatory savings pillar was added to the Russian pension system in 2002, but by 2022 the Ministry of Finance terminated it and transformed it into voluntary pension savings. Because it was in effect for much less time than the typical life-cycle horizon, mandatory pension savings never had a chance to show its potential for increasing the pension benefits of future pensioners. The successful implementation of a mandatory savings pillar requires that general rules and regulation remain stable over at least a 40-year time horizon for the accumulation phase and a 20-year time horizon for the decumulation or payout phase. In addition to the brevity of its existence, the mandatory savings pillar also faced several other obstacles. The state prioritized the welfare of existing pensioners, and this bias eventually led to the introduction of more and more restrictions on the pension savings pillar and its coverage. Many problems arose in the administration of pension savings and in coordinating the actions of various government departments involved in its regulation. Low investment efficiency for pension savings, irrational asset allocation in non-state pension funds’ portfolios, and poor active management decisions were among other issues. Based on the problems outlined, the authors have formulated basic proposals for the future of the pension savings system