At present, employers pay insurance contributions to the mandatory pension insurance system at a rate of 22% of the employee’s payroll fund. Six percent of that sum may be spent on forming pension savings, and 16% on forming the insurance pension, or if the employee chooses so, all the 22% may be spent on the formation of an insurance pension.
Citizens born in 1966 or earlier can form their pension savings only with voluntary contributions paid under the program of state co-funding of pension savings or with maternity (family) capital money invested in the funded pension. If a citizen is working, mandatory insurance pension contributions are spent only on the formation of the insurance pension. There are also pension savings made by men born in 1953-1966 and women born in 1957-1966, for whom insurance contributions for the formation of the funded pension were made in the period from 2002 till 2004. The payment of those contributions stopped in 2005 due to legislative amendments.
A citizen born in 1967 or later had a choice of the pension savings plan until December 31, 2015:
- to form only the insurance pension
- to simultaneously form insurance and funded pensions.
Citizens born in 1966 and earlier did not have a choice.
Currently, the right to choose a pension plan is granted to citizens born in 1967 and later, for which mandatory pension insurance contributions are paid for the first time since January 1, 2014.
In the period until December 31 of the year, in which the five-year period since the first payment of mandatory pension insurance contribution expires, these citizens can:
- sign a mandatory pension insurance agreement and apply for a transfer (early transfer) to a private pension fund;
- file an application declaring their choice of an investment portfolio of a managing company, an expanded investment portfolio of the state managing company or an investment portfolio of government bonds of the state managing company.
In case of modification of the unified register of persons insured in the mandatory pension insurance system or the Russian Pension Fund’s acceptance of the application choosing an investment portfolio and the pension plan, which assigns 6.0% of the individual part of the insurance contribution for the formation of the funded pension, such insured persons are entitled to a pension plan assigning insurance contributions for the funded pension.
Persons who have not made their choice or decline to use this right are provided with a pension plan assigning the entire sum of insurance contributions for the formation of the insurance pension.
If insured persons do not reach the age of 23 upon the expiry of the five-year period since the first payment of mandatory pension insurance contribution, the aforesaid period shall be extended through December 31 of the year in which they turn 23.
If a citizen decides to stop forming the funded pension, the formed pension savings will continue to be invested by the chosen insurer (PFR or a private pension fund) and will be paid in full when the citizen applies for the assignment and payment of pension. The insured person shall retain the right to dispose of those pension savings and to choose who will be managing them.
N.B. All mandatory pension insurance contributions paid by employers for their employees in 2014, 2015 and 2016 are assigned for the formation of the insurance pension.
All pension savings formed earlier continue to be invested by managing companies or private pension funds and will be paid in full, including the return on investment, when a citizen can retire and applies for the assignment of pension.
Additional contributions paid by citizens under the program of state co-funding of pensions before 01.07.2013 have been fully transferred from the Russian Pension Fund to managing companies or private pension funds. Voluntary contributions made by citizens in the third and fourth quarters of 2013 and in 2014, have been invested by PFR since January 2015 and transferred to the private pension fund of the citizen’s choice after the latter joins the system guaranteeing safety of pension savings and proves one’s compliance with the requirements of the Central Bank.
In accordance with Federal Law No 422-FZ dated December 28, 2013, “On Guaranteeing Rights of Insured Persons in the Mandatory Pension Insurance System of the Russian Federation in the Formation and Investment of Pension Savings, as well as Identification and Payment of Pension Saving Benefits”, private pension funds, which are non-profit organizations acting as mandatory pension system insuring parties, shall be transformed before January 1, 2016, into private pension funds – joint stock companies (hereinafter referred to as joint stock pension funds) or liquidated. In case the activity of a private pension fund ends, all pension savings from mandatory pension insurance shall return to PFR.
Depending on the pension plan in the mandatory pension security system, all citizens possessing pension savings have the right to trust with their management:
- the Russian Pension Fund by choosing:
- o a managing company (MC), selected in a tender, which signs an agreement with PFR on trust management of pension savings, including an investment portfolio of the state managing company – Vnesheconombank;
- a private pension fund operating in the field of mandatory pension insurance.
It is possible to change one’s insurer (PFR or a private pension fund) and managing company each year, by submitting a relevant application with a local PFR territorial office. The procedure for calculating pension savings transferred to the new insurer may differ.
N.B. A citizen changing one’s insurer more than once in five years may lose the return on investment, which is generated by the previous insurer. In case a citizen has PFR as its insurer, the managing company or the investment portfolio of the managing company can be changed every year, without losing the return on investment.
What is the difference between a managing company and a private pension fund? In case pension savings are put into trust management by a managing company or the state managing company, the funded pension shall be assigned and paid and pension savings and return on their investment by the managing company shall be accounted by PFR. In case pension savings are kept in PFR, a private pension fund chosen by a citizen shall invest and account of pension savings and to assign and pay the funded pension.
Pension savings can be received in the following forms:
A lump-sum payment – all pension savings are paid at once in this case. The payments are received by:
- citizens, whose funded pension amounts to 5% or less of the old-age insurance pension, including the fixed payment, and the funded pension is calculated as of the day of funded pension assignment;
- citizens assigned an insurance pension on the occasion of disability or loss of breadwinner, or a state pension, who upon the achievement of the standard pension age do not acquire the right to an old-age insurance pension because of the lack of the appropriate pension insurance record or the required number of pension points (with due account of transitional provisions of the pension formula).
Term pension – Its duration shall be established by the citizen oneself, but it cannot be longer than ten years. This type of payment is made in case the right to an old-age pension is acquired by citizens who form their pension savings with contributions made under the program of state co-funding of pensions, including contributions paid by their employer, the state co-funding contributions and return on their investment and funds of maternity (family) capital assigned for the formation of the future pension and return on their investment.
Funded pension – paid monthly and throughout the life period. Its size depends on the expected payment period of 19.5 years (234 months). In order to calculate the monthly payment, one should divide the total sum of pension savings calculated in the special part of the individual account of the insured person as of the first payment day by 234 months.