The end of 2015: Pension money – the oasis with signs of Mirage

The end of 2015: Pension money – the oasis with signs of Mirage

Moscow. December 29. Non-state pension funds in the past year have become one of the main participants of the financial market. Funds came in for the first time since 2013, the fresh money – over 600 billion rubles – has reignited the market for corporate and government borrowing. In terms of sanctions and the difficulties foreign borrowings of the company have switched to the domestic market since the beginning of the year in the primary market were placed debt securities worth more than 1.7 trillion rubles, which is comparable to peak 2013.

Benefits received and banks in their capital NPF has invested significant amounts of pension savings. The entire year did not abate disputes about the future of the pension system and about where to invest pension funds. The following year, private foundations must receive 270 billion rubles of savings from Pension Fund of Russia (PFR), despite the “freezing”. Likely to be continued debate about the fate of the cumulative system. Perhaps the Ministry of Finance and the Central Bank of the Russian Federation will prepare a new concept of the pension system with a funded element that will be less dependent on budget.

In anticipation of savings

The year began with expectations of funds of pension savings in the NPF: they were to receive those funds until March 1, passed the test of the CBR and entered system of guaranteeing pensions. By this time in the guarantee system consists of 24 PSF, and they have been accumulating for the fourth quarter of 2013 and funds for the transitional campaign for 2013-2014. According to estimates of the Central Bank – is more than 600 billion rubles. As a result, the volume of funds under management Nppou amounted to 1.7 trillion rubles.

In parallel, there was heated debate on whether to preserve in principle a savings system or to eliminate it. In this struggle, a United front was organized by the Central Bank, the Ministry of Finance, Ministry of economic development, non-state pension funds and professional associations of the financial market and was against the social block of the government headed by Deputy Prime Minister Olga Golodets.

The Ministry of labor in their arguments for the abolition of the cumulative element of the cited examples of countries that abandoned it due to the negative impact of the financial crisis the funds have lost some retirement savings. Another argument of the Ministry of labor was low returns from the investment of pension savings of the Russian NPF.

Olga Golodets argued for the cumulative translation system from mandatory to voluntary.

Even President Vladimir Putin during the communication with the public in April said that while a funded system is not working on the economy, and is used only for the purposes of the Ministry of Finance.

Economic bloc and the Central Bank said that the cumulative system should be retained, as these funds only in the conditions of crisis and closed foreign markets a source of long-term investments in the economy.

“Pension funds are the primary investors. When the market turbulence, they do not dump their portfolios, not behaving like a short-term control. It is the power that ensures financial stability. Denying this resource and closing the flow of investment to the state, we, unfortunately, come to the degradation of the Russian financial market”, – said in April the first Deputy Chairman of Bank of Russia Sergey Shvetsov. He urged to choose to invest in the development of the economy – directly through the government or through private pension funds more efficiently.

Market participants with a sinking heart waiting for what will end this debate.

As a result, on 23 April, the government decided to retain the mandatory funded part of the pension. “We must develop a predictable pension system, of course, engaged in its improvement, optimization of a number of pension arrangements,” said Premier Dmitry Medvedev.

However, he instructed his subordinates to prepare proposals for a more effective use of the savings system as a source of long-term resource for economic growth.

The news was positively perceived by market participants, issuers, banks.

The first euphoria

In may-June the funds included in the insurance system, received from the Pension Fund of Russia, the Central Bank estimates, more than 600 billion rubles. It was an oasis in the desert of the Russian stock market. Issuers that about one year could not enter the market due to high interest rates, volatility and sanctions, began to place their bonds. Pension funds were chasing the issuers, because they had to accommodate a huge array of money and quality tools on the market is not enough. The company even began to dictate terms to the funds, to do the “club” placement for multiple funds on mutually beneficial terms.

The first boom came in the spring – early summer, second in autumn. At the ruble debt market left many high-quality borrowers – “RusHydro”, “Rossetti”, “Magnet”, “Rostelecom”, “Magistral of two capitals”, “Bashneft”, “Novolipetsk metallurgical combine”, “Polyus gold”, “Ribbon”, VEB, “Power machines”, “VimpelCom”, “MegaFon” and AFK “System”.

In July entered the market and the Treasury bond placement with reference to inflation – OFZs-IN on 75 billion rubles. The placement was a huge success – the demand was more than 200 billion rubles, a significant part of the placement was purchased by PPF.

The second tranche of OFZ-IN was posted in December to 13.6 billion rubles, with less success. Many pension funds had invested money may come in.

In addition, in may had been concluded two transactions to invest funds in banks. NPF “the Future”, Boris mints and three of the Foundation of the Bin group purchased a 10% stake in PSB. Each group paid 6.9 billion primary owners of the Bank – Ananyev brothers, who after contributed the funds to the Bank. Market participants considered the assessment of PSB in one capital for this trade is overestimated, while other banks in the current environment, are much cheaper. Later the Central Bank, after reviewing the transaction, said that the assessment was fair.

Some experts believe that the deal was a compromise between the Central Bank and funds – the regulator defended the preservation of the mandatory funded component in the pension system, and the funds instead should help banks in solving the problems with capital that arose as a result of the crisis. General Director NPF “Future” Nikolai Sidorov does not believe that it is a compromise. NPF for “Future” purchase of shares of PSB – only business interest, he says.

“In the Russian banking sector there is an interest for investment. And we are convinced that the end of the crisis, major banks are one of the first win on this. This calculation has an economic dimension, and confidence in improving the macroeconomic situation in the medium term. We invest in the key players of the banking sector that are systemically important, reliable financial institutions, consolidation of liquidity and lending to the real sector of the economy. In addition to PSB, in the portfolios of funds O1 actions VTB, “Open”, – said Nikolai Sidorov.

“Pension money should work for the long term, and the effectiveness of their investments should be considered on the horizon as at least 3-5 years,” he said.

In July the Moscow credit Bank (ICB) conducted the IPO, the funds of original O1 and the group “Bin” expressed interest in the deal, however, in placing took no part. According to unofficial information because of the recommendations of the regulator not to participate, which were given after a negative outcry from the transaction with PSB.

Infrastructure craves pension money

Summer has begun discussions about what funds should invest in infrastructure projects. Deputy Finance Minister Alexei Moiseev has proposed to oblige pension funds to invest up to 50% of newly arriving funds in infrastructure projects. Vladimir Yakunin as head of Russian Railways, also came to the government with an initiative to establish a requirement for pension funds to invest 10-15% of pension savings in the financing of infrastructure projects. Such rules ultimately were not imposed, but the Central Bank has set restrictions on investing in Bank assets – up to 60% savings from 1 July 2015, to 40% from 1 January 2016. This should stimulate pension funds to invest your savings in companies in the real sector and not to engage in “double mediation”, explained this decision of the representatives of the Bank of Russia.

The Ministry has made efforts to establish a bridge between issuers and pension funds. Deputy Minister Nikolay Podguzov summer held meetings with representatives of major Russian companies and pension funds and management companies. The purpose of these meetings, according to participants, was to bring those who need money with those who have them. Podguzov companies explained that before resorting to the government for support from the national welfare Fund, they should try to attract funds of pension funds.

“The pension money of about two trillion, it’s certainly not a drop in the ocean, but not sea. However, ceteris paribus, the effectiveness of investments of private funds is higher than public financing”, – said one of the participants.

Similar meetings were held with representatives of Rosneft, SIBUR, Russian Railways and other companies.

As commented then, the participants NPF, they are not against infrastructure investment, but only if the projects will be reliable, that is guaranteed by the state, and also to have a return of “inflation plus”. However, while such projects are not so much.

Only at the end of the third quarter of 2015 in the NPF were about 1.7 trillion rubles of pension savings. According to the CBR, for the third quarter funds reduced investments in Bank deposits by 29% to 480,7 billion rubles, their share in the total savings was 28.7% (as of the second quarter it was about 40%). While investments in corporate bonds for the third quarter increased by 12.2% to 656,6 billion rubles, the total volume of pension accruals 39.2% (in the second quarter, this share was equal to 34.4%).

Also pension funds have increased investments in equities – 21% for July-September. Currently, equities account for 217,7 billion, or 13% of the total portfolio SPC (in the second quarter the share was equal to 10.6%).

Investments of private pension funds into state securities of the Russian Federation at 6.1% in the structure of pension savings to 102.2 billion rubles.

Care Motylev

After the arrival of funds from the PFR has changed the leader in terms of the cumulative part of the pension under management. If in the beginning of 2015 on the first place on volume of pension savings was NPF “LUKOIL-Garant” – 149.3 billion roubles, following the results of 9 months of 2015 in the first place was the NPF of the savings Bank with 240,3 billion rubles, which used to be on 3rd place (had to 74.2 billion rubles). “LUKOIL-Garant” dropped to second place following the results of January-September it was 212,2 billion rubles. In third place is now NPF “the Future” (former NPF “Welfare OPS”) – 154,9 billion rubles, which was in second place with shall be 115.1 billion.

In addition, in early August there was the first big shock in the market of private pension funds – the Central Bank revoked the licenses of seven private pension funds affiliated with a former banker Anatoly crank – SPF “the Sun. Life. Pension” SPC “Solar time”, NPF “Savings”, NPF “adekta-Pension”, NPF “Savings Fund Sunny beach”, APF “Protect the future” and NPF “Uraloboronnedra”. All funds accounted for more than 50 billion rubles of pension savings. The reason for the revocation of licenses was that the funds had violated the requirements of the regulator. In particular, approximately 40% of pension savings were invested in illiquid securities and mortgage participation certificates overestimation.

In October, the Bank of Russia has listed to the pension Fund of 38.6 billion rubles of pension savings (nominal) insured in these funds.

After this incident, the regulator has imposed restrictions on the investment of private funds in mortgage certificates of participation at no more than 10% of assets.

Short-lived happiness

In July the government resumed the discussion about the “freezing” of pension savings for the year 2016. And in October the final decision was made on extending the moratorium.

Prime Minister Dmitry Medvedev said that the decision to “freeze” is temporary, and the fundamentals of current pension system will not change.

“We need money for development. It is approximately 345 billion rubles, which we can use to solve urgent tasks, including, maybe, and crisis. This is a temporary situation,” Medvedev said. These funds will be used in the reserve of the government of the Russian Federation. Later it was reported that these funds can go to doindeksatsii pensions to current retirees, but the decision is still pending.

That Russia has no plans to abandon mandatory funded system, said President Vladimir Putin.

However, the funds do not believe that in conditions of low oil prices and a difficult situation with budget execution a moratorium on the transfer of savings in funds will be withdrawn in the coming years. For example, the largest Fund – NPF of the savings Bank in its plans for the next two years this provides.

Deputy Prime Minister Olga Golodets said that next year may also be decided to extend the moratorium on transfer of pension savings in private pension funds, about the threat also warns the Central Bank in its strategy for financial market development. According to experts of the Central Bank, the extension of the moratorium will have a negative impact on public confidence in the defined contribution component of the pension system and, consequently, will help reduce growth of long-term investments.

According to the President of the PARTAD Committee for internal control and risk management Alexander Baranov, as a result of decisions on the moratorium on formation of pension savings in 2014-2016 in the economy did not hit 1,450 trillion rubles, which went and will go to joint distribution component in the form of pension payments to current retirees. However, despite all the decisions, he believes the most important fundamental decision to maintain the mandatory funded part of the pension.

2016: hopes for a new system

Immediately after the announcement of the decision to freeze pension savings in 2016, the first Deputy Chairman of the CBR Sergey Shvetsov said that the Bank of Russia is preparing a new pension scheme, which will become an alternative to the existing model and will be less dependent on budget. The development is in conjunction with the Ministry of Finance, acts as consultant to the world Bank.

Later, Deputy Finance Minister Alexei Moiseyev said that the new model will have, on the one hand, to make the accumulation independent of budget decisions, and to ensure the safety and profitability of savings. It can be presented in the first quarter of 2016.

“We need to identify a source of funding savings. There are several options, but none of them can be considered satisfactory. It is obvious that we have no budgetary resources to Finance through the budget, obviously we can’t put additional burden on enterprises due to the increase of taxation of the wage Fund. That leaves not very many options,” said Moses, noting that savings will most likely be shaping the citizens themselves.

In addition, next year the NPF will receive from FIU about 270 billion rubles of pension savings – balances of pension funds that were not committed at the time of the transition this year to the system of guarantees and at the time of the transfer of funds from the FIU or the state management company (this function is performed by the VEB), and also funds transitional campaign.

Funds have already started to prepare issuers for the arrival of this money. As stated by the CEO of Sberbank NPF Galina Morozova, the Fund and other pension funds themselves go on issuers say that in may the money will come, and now we need to think about new bond issues, because this process is not quick.

“This limit that we placed this year (about 150 billion rubles – approx. If), there are only 20-30 issuers. One of them is about 10 with those yields, which suited the Fund. There is still a resource. Those who are located this year, does not mean that they ran out of investment programs, projects are long,” – said Morozov.

Also participants of the market next year expect the decision to maintain the mandatory funded part will not be revised, although some of them pessimists.

“Pessimists claim that in recent years the state has continually demonstrated such behavioral feature: hypothetically, if something can be taken away from the pension system, there are always people taking care for this. Optimists believe that the choice has already been made, and the state is unlikely to review its decision”, – said Alexander Baranov. He also noted that the market has a strong negative expectations that the social block of the government again may initiate a proposal to extend the moratorium on the transfer of annual contributions to a fully funded system and in 2017-2018.

The expert remains hopeful that the government will retain the mandatory funded pillar, but skeptical of the fact that in the first quarter of 2016 will extend to the Russians the right to choose their pension model.

Chairman of the Board of NPF “European” Evgeniy Yakushev also very optimistic. “We expect that 2016 will be the last year of “confiscation” of pension savings, and will return to citizens the right to select pension – defined contribution and defined benefit pension or insurance only (it expires at the end of 2015 – approx -Interfax)”, – says the head of NPF “European” Evgeniy Yakushev.

The Chairman of the Central Bank Elvira Nabiullina in an interview also expressed the hope that the retention of the funded element of the pension system. “I’d hate to bury the cumulative element of the pension system. There are several reasons. The first retention element allows the best way to ensure the rights of our pensioners, it is cumulative element does not decrease and the so-called replacement rate, despite demographic trends. The second is a very important source of long term money for the economy,” she said.

However, while the situation in the economy and forecasts of its development does not allow us to hope that in 2017-2018, the budget situation will be significantly better than it is now, therefore, it is possible that the oasis, which became the pension money this year, will gradually become a Mirage.