Anton Drozdov calls for raising awareness of potential loss of income in case of premature change of insurer

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12 august 2019

The PFR Board chairman has told the newspaper Kommersant about details of the ongoing transfer of pension savings.

What are the intermediate results of pension saving transfers accomplished this year?

As of July 1, 81,600 applications were filed for changing the insurer. That is nearly seven times less than last year, when 530,000 applications were submitted. Ninety percent of those applications were filed online via the Public Services Portal, which is one of the methods remaining after the federal law, also known as the Zhuravlyov law, took effect on January 1, 2019. It is also possible to personally file the application in the client service [of the PFR], or the client service could be visited by the applicant’s representative with the power of attorney. That’s it. The PFR no longer accepts letters or courier deliveries.

How many people have submitted their applications personally, and how many have sent their representatives?

Out of almost 82,000 applications, about 8,000 were filed in writing and only ten of them by representatives using the power of attorney. We can see that most applications are filed personally, without proxies. The law has actually limited engagement of intermediaries in this process.

What is the structure of applications?

About 38% applicants seek to swap the PFR for a private pension fund, and the rest 62% have filed for transfers from one private pension fund to another. Same as before, 98% of the applications were filed prematurely.

What is your opinion: are premature transfer applications inspired by agents or independent decisions by citizens?

The service [application filing via the Public Services Portal] is operating as usual. We received 2.15 million enquires about the loss [of investment income], and only 81,600 transfer applications were filed in the first half of the year. These are the people who decided to initiate the early transfer despite everything [the sum of lost investment income].

Does the huge gap between the number of applications and the number enquires about lost investment income mean that most enquires are sent by agents’ bots?

It is possible that the enquiries were made by agents’ bots, but the PFR is actively monitoring the process, which rules out the sending of multiple enquiries from the same IP address. That is being done under the supervision of the Central Bank and Rostelecom. We keep off bots at the application stage.

True, the number of applications has reduced but their structure is unchanged. Hence, we should keep working with citizens to warn them about potential losses of investment income as a result of the premature change of the insurer and to explain that their investment income will be accrued to mandatory pension insurance reserves of either us or the private pension fund left by the client. We believe this should be done by both the Pension Fund and private pension funds, which are defined by law as equal parties to mandatory pension insurance.

What measures exactly have been taken to this end?

We discussed the issue at a meeting hosted by the Central Bank: all private pension funds were urged to inform citizens that investment income would be lost in the case of filing for transfer before the expiry of the five-year period. That’s good for the market because the image of private pension funds is affected by losses incurred by citizens. Funds realize that but their managers have relevant customer attraction KPI, which leads to a certain conflict.

We agreed with the Central Bank to conduct the monthly monitoring. For its part, the PFR monthly reports results of transfers and relevant analytical information to the Central Bank. Additional measures will be taken unless the situation is changed. For instance, it has been proposed to deprive private pension funds of the possibility to use services of intermediaries in the conclusion of new agreements or to cancel the norm, which leads to the loss of investment income in case funds are transferred within less than five years, etc. The president has tasked us with settling the issue by legislative means if necessary. For now, we continue the monitoring and will prepare our final proposals based on monitoring results by September.

Why give so much attention to problems caused by transfers?

Largely, the reason is results of last year’s transfers. In our opinion, private pension funds were less aggressive than before. For the first time, less than 2 million applications were received by the PFR last year, compared to 6.2 million in 2017. Secondly, the number of complaints received by us as a result of the 2018 transfers also declined: we received 1,600 complaints in the first half of this year, as against 2,000 in the relevant period of last year. But still, transfers were not ideal and the additional measures ensured by the Zhuravlyov law were necessary.

The Security Council and the Prosecutor General’s Office are monitoring the issue. Complaints are processed in order to protect rights of citizens. But our capacities are limited because we are not a party to the agreement. We may participate in court hearings as a third party, we may also explain rights to citizens, present documents, and inform the police in case of overtly fraudulent situations. We are working together with the Prosecutor General’s Office and are discussing additional measures, which could be taken in order to protect people’s rights. Most violations seen last year happened when applications were delivered by mail or by courier.

Did the PFR see those violations?

There was a check in August of last year, which resulted in additional restrictions on filing applications by mail or via the courier service. We acquired formal grounds for shutting down those delivery methods only on January 1.

Was there any control over acceptance of applications?

Of course. However, the overwhelming majority of documents [filed with the PFR] strictly complied with the law. We exercised additional control and asked certain regions for packages of documents, but everything was properly done. A PFR worker cannot say at a glance whether documents are fake or not.

Were you cooperating with the Notary Chamber?

We compared the number of notaries and the number of notarized certificates during our checks, and applied to the Notary Chamber afterwards. A PFR worker cannot say whether the notary’s signature is right or not. What is more, our personnel are not entitled to conduct such checks.

Several notaries certify thousands of applications …

After we realized that, we appealed to relevant agencies. On the whole, we keep building barriers against unscrupulous agents. We stopped the practice of electronic filing of documents via certification centers in 2017, we limited last year and stopped on January 1 of this year the submission of applications via courier service or by mail. We are thinking about other additional measures. In fact, we are chopping off a cat’s tail bit by bit. In fact, the risk is inherent to the system. A drastic solution is the system of individual pension capital, which will exist separately from us.

Will the Prosecutor General’s Office pay a visit to the PFR?

It has already paid us a visit. The entire activity of the PFR conducted in 2017, 2018, and the first half of 2019 has been checked. Now checks are continuing in territories, in relation to funds transferred to private pension funds, and at our territorial bodies.

To our knowledge, you are lobbying the submission of applications with the current insurer …

No, we are not lobbying this option. The issue was part of the discussion before the adoption of the Zhuravlyov law. The law has been adopted, and we are moving along this path.

How well the filing of applications via the Public Services Portal has been working, in your opinion?

A meeting held with private pension funds on July 17 (the PFR holds monthly meetings with all private pension funds at its headquarters) showed that the Public Services Portal is operating smoothly. Clearly, we put a halt to massive applications coming from the same source. Applications filed consistent with the restrictions are processed as usual.

Of course, the delivery channel will continue to develop and improve: we have customized the interface for submission of electronic applications and have optimized the period of their processing. We are conducting online monitoring of the accessibility of the portal and are controlling the period of application processing. Whenever delays are too long, we rapidly resolve those problems with Rostelecom, the operator of the Public Services Portal.

The loss of investment income is related to the question of mandatory pension insurance reserves, which have become quite large in the PFR …

I can tell you the secret – 149.8 billion rubles as of July 1. Net pension savings accumulated by the PFR is 1.8 trillion rubles. By law, mandatory pension insurance reserves cannot exceed 10% of the value of PFR net assets. We did not surpass that margin.

You must be hearing calls for sharing PFR money quite often …

True, proposals have been made to spend mandatory pension insurance reserves in some way, but there are no legal grounds for doing so and no concrete proposals have been made to the Pension Fund. It is unclear how to divide and between whom. If we receive such proposals, we will consider them.

Just like private pension funds, the Pension Fund is a party to the mandatory pension insurance system, which bears all risks. Therefore, the PFR transfers funds to the pension guarantee fund and creates reserves.

Does the state agency need this amount of mandatory pension insurance reserves, which mostly guarantee savings of ‘silent’ clients?

If this amount proves unnecessary, the question of its use will arise. The answer should be found together with the Finance Ministry. The PFR has lots of tasks, primarily to increase pensions without losing financial stability. In my opinion, it’s better to have reserves than not to have them.

What’s the status of the debate on the PFR organizational and legal form?

Any organizational and legal form should ensure conditions for the fulfillment of PFR functions. The question is whether it can boost the Fund’s efficiency. This is the angle of the discussion. It is ongoing.

Will it be over by the yearend?

I think the discussion will continue in the fall, because every addressed issue is quite serious and concerns interests of various parties, including participants in the social partnership (representatives of employees and employers).