Investment of pension accumulations

Since 2002 Russia has adopted a pension model based on insurance principles. Unlike the former system, the person's pension rights now depend not only on seniority, but also on the size of wage fund, which effect premiums.

Since 1^st January old age labour pension comprises two parts - insured and accumulative.

The insured part is formed at the expense of employers' premiums, paid to the person's individual pension account after 1^st January 2002, and by transformation of the person's pension rights acquired before 2002 into settlement pension capital.

The insured portion includes basic fixed labour pension. Beginning with 1^st February 2011 the basic fixed old age pension is 2 963 rubles and 7 copecks.

The insured part assets are indexed every year by the State according to average wage raise and the PFR revenues raise per one pensioner, but not higher than the PFR revenues raise. Physically this money goes to pay pensions for current pensioners.

The accumulative part forms for:

• obligatory - working people born in 1967 or younger at the expense of premiums effected by employer to the PFR (in 2011 - 6% of the wage fund, but not more than 463 thousand rubles a year);
• voluntary - participants of the State pension co-funding programme  at the expense of the person's voluntary contributions, funds of the state co-funding and employers' contributions if the latter are the third part of the programme.

Accumulative part assets of the future pension - person's pension savings are included by the PFR into special part of the person's individual personal account. The person is free to choose the manager of the accumulative portion of his future pension.

Persons have the right to form the accumulative part of their future pension:

• through the Russian Federation Pension Fund (PFR) by choosing:
  
  
  • State management company (SMC) - Vneshekonombank. The SMC invests pension accumulations assets only into state bonds, which is less profitable but less risky way of pension accumulations management*,
  • private management company, chosen by the bidding (MC). Such companies have a bigger list of assets than the SMC has, which your pension savings can be invested to.
• through the non-state Pension Fund (NPF), one kind of its activity is pension security of the insured, decided to save the accumulative portion of the labour pension in corresponding fund. It also can invest pension savings assets intended to pay the accumulative portion of the labour pension.

Today more than 68 million people have accumulative part of labour pension. By law pension savings assets are invested in stock market, therefore the PFR cooperates with 57 management companies, including the State management company Vneshekonombank, and with specialized depositary and 129 non-state licensed pension funds.

* The Federal law № 182-FZ "On amendments to the Federal law "On assets investments to fund the accumulation portion of labour pension in the Russian Federation" came into force on 18^th July 2009. According to this law the State management company, whose functions are currently executed by "Vneshekonombank" (VEB), has the right to invest pension savings into two securities holdings.

The first "basic" holding of the state securities is formed from the bonds of the Russian Federation and corporate bonds of Russian issuers, secured by the State.

The second extended securities holding is formed from the State securities of the Russian Federation subjects, corporate bonds of Russian issuers, secured by the State deposits in rubles and foreign currency in lending agencies, mortgage securities, international financial organization bonds.

Pension assets of the most citizens are automatically put into the extended securities holding. At the person's will his pension assets can be invested into the "basic" securities holding. For this the person has to apply into the domiciliary PFR Office. The assets will be transferred to the chosen securities holding of SMC next March.

Profitability of pension assets investments by management companies:

	in 2007	in 2008	in 2009	in 2010	in 2011
State management company	5.98	-0.46
Extended securities holding*	-	-	9.52	7.62	5.47
Holding of state securities*	-	-	5.72	8.17	5.90
Private management companies	from -1.33 to 7.32	from -2.29 to 55.0	from 7.56 to 110.48	from 7.52 to 33.21	from -17.83 to 7.69

* the division of SMC securities holdings took place on 1st October 2009.