The Ministry of Finance proposed to punish pension funds for a failed investment

The Finance Ministry intends to introduce liability for the funds for the investment of pension funds of citizens by setting up a standard yield. The draft on amendments to the law “On private pension funds” published on Monday, October 10, on the Federal portal of draft regulations.

Currently, the law requires the NPF 100% repayment of pension funds regardless of the market situation. The Finance Ministry proposes to toughen the penalties NPF from investment of pension savings and reserves. Shareholders of the funds will require repayment of lost benefits, if the Central Bank deems the actions of the Manager ineffective. Market participants believe that this initiative will lead to withdrawal funds in a conservative strategy and lower incomes for future retirees.

As noted in the bill, the Fund is obliged to provide economically substantiated level of profitability of pension funds or funds of pension reserves based on the level of risk of assets (asset), components of pension savings and pension reserves. If the NPF will receive a loss, to compensate losses (including loss of profits) to customers it will have at the expense of own means. The decision on compensation, as follows from the document, may take the Committee of financial supervision the Bank of Russia. For example, if you find that Fund managers have violated investment guidelines, or if the regulator considers that the NPF is invested for future retirees ineffective.

The decision that the Fund is obliged to pay its depositors, the Central Bank may adopt “on the basis of reasoned judgment, including the economically substantiated level of profitability of pension funds or funds of pension reserves” taking into account the level of risk. To challenge his NPF representatives can Commission the Bank of Russia created on the basis of the decision of the Board of Directors of the Central Bank.

“The question is in the competence of the Bank of Russia in accordance with the law”, — said the press service of the Ministry of Finance.

The Bank of Russia explained that the draft law introduces the obligation of the Fund to manage the pension savings and pension reserves “with intelligence, diligence and discretion solely in the interests of the insured persons”. If the funds of pension savings and reserves are invested without a proper analysis, as assets are purchased at inflated prices, the Fund violates this duty, according to the Central Bank.

“Economically reasonable level of profitability is the rate of return that can be obtained when investing in instruments with a risk level comparable to the level of risk in the Fund’s portfolio. If the yield on the instruments in the Fund’s portfolio less the yield on the counterparts side, the Foundation of its duty to invest in the interests of the insured persons violate” — said the regulator.

The Central Bank said that the bill requires payment of all losses (foregone benefits), but only those that were received from acquisition of assets at inflated prices. To avoid liability to investors managing pension funds will be able only if it is proved that the loss occurred due to force majeure or actions of beneficiary or Trustor.

Market participants believe the tightening too strong. “This excessively harsh measure. If before the funds required break-even investment, it is NPF, as it follows from the logic of Finance must provide a certain level of profitability,” — said General Director of consulting company “Pension partner” Sergey Kolesnov. He says that the regulator is trying to prevent the shareholders of the funds to invest in their risky projects, may penalize the entire market. “The introduction of the return requirements may discourage managers to invest in risky assets. All are easy to invest in BFL, but high returns future retirees will not see” — fears Kolesnov.

Top Manager of a large NPF do not understand how you can claim reasonable yield funds. “For example, if the Fund placed money on Deposit at the Bank, then the Central Bank revoked his license, then who should compensate the loss of customers?” he says. The financier is sure that the practice of “reasoned judgment” that did not apply to NPF, may lead to numerous lawsuits funds to the regulator.

Executive Director of NPF “Safmar” Evgeny Yakushev believes that the requirement of the Ministry of Finance to the economically justified rate of return could change the entire landscape of the pension market. “In some countries, such as Slovakia, have already tried to introduce the liability of its shareholders NPF from investment results. This led to a mass departure of NPF in the conservative strategy,” he said.

Sergei Kolesnov does not exclude that for the evaluation of investment results, the Central Bank may introduce a rating system depending on NPF investment strategy. This, in particular, in may 2015 the conference RAEX “Future of pension market in 2015” said the Director of the Department of collective investment and trust management of Bank of Russia Philip Gabunia.

Funds work and invest pension savings in the interests of their clients, but what kind of income they have to earn their customers, not registered anywhere, he said. Gabunia also explained that the Central Bank will raise the benchmark before the NPF, and will analyze their work and portfolio. “If we understand that the NPF is not acting in the interests of the client, and, for example, in their own interests, then it will be claimed and will assess how much the Fund needs to reimburse the funds,” he said, adding that the yield should not be lower than OFZ.

In March 2016 the government has drafted a bill obliging the shareholders of the NPF to compensate their customers losses resulting from the placement of savings in poor-quality or low-yielding assets. As has explained then the Deputy Minister of Finance Alexey Moiseev, we are talking about cases where the management of the Fund invested in the interests of the owners of NPF or any third parties. “This can be identified, for example, during the inspection of the Central Bank”, — he said.

The Central Bank then explained that investments of the Fund in any instruments in the presence on the market alternatives that provide less risk for a given level of return or higher return at a comparable risk, can also qualify as “unfair behavior”. In cases of “reasonable, but unsuccessful investment”, when the securities have fallen in price because regardless of the Fund factors, the Central Bank punishment is not intended.