Pension Fund of the Russian Federation

During Financial Crisis

Prof. А.SolovyevHead, Department of Actuarial Computations

and Strategic Planning

Pension Fund of the Russian Federation

2

  Annual average pension, RUR

Annual average pension / pensioner’s subsistence level, %

Labor pension 55,,218218 123123

Old-Age Labor

Pension55,,641641 133133

Social pension 33,,315315 7878

Annual Average Pensions,Annual Average Pensions, 2009 2009

3

PF Short-Term Objectives During Financial CrisisValorization

of pension rights converted in 2002

Establish social top-up tolabor pension which is below PSL in the region

Changing indexation of fixed basic size of labor pension in line with indexation of contributory portion

Minimal pension guarantee (with social support) not below subsistence level in

the regionTransformation of the “basic

portion” of labor pension into ‘fixed basic” size of contributory

pension determined by contributions history

Promotion of retirement income by claiming pensions later

Establish social top-up tosocial pension which is below PSL in the region

Changing indexation of social pension in line with the growth of subsistence level in the region

4

Changing Indexation of Labor Pension

Current system Revised Labor Pension

Inflation-indexed

wage-indexed but not to exceed PF revenues per pensioner

Basic portion of labor pension

Contributory portion of labor pension

Wage-indexed but not to exceed PF revenues per pensioner

Fixed basic size of Fixed basic size of contributory portion contributory portion of labor pension of labor pension

Insurance Insurance component of component of contributory portion contributory portion of labor pensionof labor pension

5

Revised Labor Pension from 2010

50.4% 49.1% 49.6% 51.1% 54.2%

49.6% 50.9% 50.4% 48.9% 45.8%

41.2% 42.1% 41.8% 41.2% 41.1%

58.8% 57.9% 58.2% 58.8% 58.9%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2010 2015 2020 2025 2030

Basic portion of labor pension Contributory portion, BAUFixed basic size, baseline Contributory portion, baseline

6

Increasing pensions

ANNUAL AVERAGE GROWTH OF LABOR PENSION

BASIC PORTION

2,301

CONTRIBUTORY PORTION

2,917

LABOR PENSION

5,218

FIXED BASIC SIZEOF СONTRIBUTORY

PORTION

3,121

CONTRIBUTORY PORTION

4,446

LABOR PENSION

7,567

INCREASE = 820

INDEXATION 6.3% = 390

VALORIZATION = 1139

INCREMENT = 2,349

2009 2010

7

Short-term Financial Outcomes, bln. RUR. Key features 2009 2010 2011 2012

Revenues, including: 2,545 3,155.2 4,324.3 5,251.9

Contributions 930 1,799.6 2,820.5 3,251.6

Federal transfers to provide basic portion of labor pension 1,034 0 0 0

Transfers to support valorization 0 499.07 557.6 594.1

Transfers to support top-ups to PSL 0 42.9 44.5 48.5

Transfers to offset shortfalls in income due to reduced tax rates under special tax regimes 0 72.1 47.8 55.7

Expenditures, bln. RUR, including: 2,999 4,276 4,825.4 5,574.9

Contributory portion (w/o valorization) 1,317 2,888.03 3,257.2 3,534.4

Valorized portion of labor pension 0 499.07 557.6 594.1

Deficit, bln. RUR -454 -1,120.9 -501.1 -323Annual average labor pension, RUR 5,218 7,567 8,530 9,207

Labor pension / PSL, % 122.9 157 158 155

Recipients of labor pension below PSL, million people 7.0 2.2 2.2 2.2

8

Long-Term Goals of the Pension Fund of Russia

Increase contribution portion recorded at individual accounts from 14% to 16%

Set contribution rates needed to create pension rights for future pensioners providing at least 40% of lost income with at least 30 years of seniority

Promote investments by contributors to enhance their retirement income through pension accumulations

PF of Russia to administer pension contributions

Set contribution rates for individual entrepreneurs based on a minimal value for contributing year -

fixed payment

Eliminate regressive scale and introduce a cap for contribution base at 1.5 of average annual income of worker (95% of employees)

Rates for employers-businesses in 1999-2011 (w/o UST rate in 2002-2009)

26%

20%

14%14%14%14%14%14%14%14%

28%28%28%

10,0%

12,0%

14,0%

16,0%

18,0%

20,0%

22,0%

24,0%

26,0%

28,0%

30,0%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Employers-businesses

10

Replacement Rate

29.5%

47.6%

40.5%

37.2%

20%

25%

30%

35%

40%

45%

50%

55%

60%

2010 2015 2020 2025 2030

Old-age labor pension, baseline

Old-age labor pension, BAU

11

Federal Budget Pension Expenditures to Support Beneficiaries with Labor Pensions Below PSL

  2010 2015 2020

Labor pension recipients needing top-ups to PSL, million people2.198 1.38 0.14

including:      

old-age 0.02 0.02 0.00

disability 0.94 0.25 0.04

orphans and survivors 1.24 1.11 0.10

       

Additional federal fund needed to top-up to PSL, billion RUR 28.07 23.3 4.0

including:      

old-age 0.1 0.1 0.0

disability 5.5 4.3 0.9

orphans and survivors 22.4 18.9 3.1

Average top-up to PSL, RUR 1,064.4 1,405,9 2,437.9

including:      

old-age 417.3 553.8 4,749.4

disability 490.8 1,449.2 1,860.0

orphans and survivors 1,511.4 1,413.6 2,674.9

12

Annual Average Social Pension, RUR

4,835

7,563

10,006

12,699

15,853

4,835

8,080

10,964

14,062

17,611

3000

6000

9000

12000

15000

18000

2010 2015 2020 2025 2030BAU Baseline

13

Availability of Funds at PF of Russia During Transition, billion RUR

-1,120.9

-1,441

-1,237.9

-1,051.4

-845.0

-632.0

-470.0

-349.4-262.7

-323.0

-501.1-453.8

-1 600

-1 400

-1 200

-1 000

-800

-600

-400

-200

02009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Current deficit (-), surplus (+), billion RUR