The President proposed moving the date of the new Law on Pensions’ entry into force to January 1, 2014. The Government has been instructed to draft and approve a new formula for calculating pensions in the first half of 2013.
Mr Putin also gave the Government until the end of this year to settle mechanisms for using the money collected in the Pension Fund for developing the economy, in particular for carrying out long-term infrastructure projects.
* * *
President of Russia Vladimir Putin: Good afternoon, colleagues,
We are here to discuss an issue of great importance for our economy and social sector. There has been much discussion on pension system development of late. This issue has been the subject of much debate in the Government, the State Duma, and the expert community.
Let me remind you that we introduced a defined contribution (DC) pension system in 2002. Overall, this system has not only demonstrated that it works but that it has potential for development too. At the same time however, given the difficulties the global economy is currently experiencing, we and many of our colleagues have been asking ourselves just how effective this system will be and to what extent it will be able to guarantee the pension system’s overall stability and – particularly important – the pension security of all groups of citizens regardless of their income. We therefore had the idea of taking some additional steps to develop the DC pension system.
I will not go into all the details right now, but it became evident during the discussions that adopting the law on developing the DC pension system is directly linked – and I cannot but agree with the experts here – with the adoption of a new formula for calculating pension benefits. Unfortunately, this new formula is not ready yet, and nor are a few other regulations. At the same time, the Government has drafted and balanced the country’s budget and those of the social funds, including the Pension Fund. This thus raises a number of questions. Should we start making changes midway to what has already been developed and put into operation? In this respect, I think we could propose that the deputies pass the law but postpone its entry into force until January 1, 2014.
As I said, the system is already in operation, and with respect to people on high and middle incomes who have voluntarily decided to join pension funds, whether state or private, it would be right not to deprive them of this opportunity and let them continue using it after January 1, 2014. In other words, those who wish to stay in this system should be able to do so. We need to give people the choice. I think this would send the market a good signal too in the sense that it would give the financial organisations working in the pension sector the opportunity and economic rationale to continue their activities in this sector.
There is another issue I want to draw to the attention of the Government and State Duma deputies. First, in 2014, we will need to balance the social funds’ budgets a little differently from the current proposals in order to take account of the additional revenue that will come in. We also need to give our attention to the use of the money coming into the state and private pension funds. No one would dispute that the regulatory framework still needs to be improved and that a system of effective and transparent oversight still needs to be put in place. I think the existing instruments are sufficient, but if we keep this system in the decades to come, the state authorities must be absolutely confident and people must be absolutely certain that these funds are being used in accordance with the law and that we are not building any financial pyramids.
These are the issues we will need to settle very quickly.
Regarding the pension formula, I know that the Government is already working on it, and it must be ready and approved within the first half of next year at the latest.
As for using the already considerable sums of money the pension funds have collected, including the state [pension] fund, I expect the Finance Ministry and the Government to settle this matter overall and present proposals for using the long-term money that these pension savings represent. The funds have already collected almost two trillion rubles, at least, the figure will reach almost two trillion by the end of the year. We need to have the laws and government regulations in place making it possible to issue infrastructure bonds that would let us invest this money in reliable, long-term and profitable infrastructure projects.
We have been discussing this issue practically ever since we first introduced the system back in 2002–2003. Unfortunately, the relevant mechanisms have still not been developed. I ask you to complete work on developing these mechanisms by the end of the year, because we have already spent the last 18 months telling the public and each other about how we are going to make effective use of this money to help develop our country’s economy, and we all know that the most effective and reliable use is infrastructure: roads, railways, aviation and so on. But it is the Government’s job to work together with the relevant experts to decide the best actual means and areas in which to invest this money.