The American pension system converges with the Russian one on one thing: both are underfunded. However, US funds have a lot more tools and, as a result, bold strategies. Experts told Gazeta.Ru whether Russia needs to adopt foreign experience.
US borrows retirement
In the first half of 2021, US municipal governments raised more than $ 10 billion in debt through retirement financing bonds. This amount exceeds any comp-arable annual figure in the past 15 years, according to figures released by the WSJ.
As noted in an interview with “Gazeta.Ru” professor of the Department of Finance and Prices of the PRUE. G.V. Plekhanova Yulia Finogenova, in the USA there is a rather acute problem of underfunding of pension schemes. The US pension system is multi-tiered, and a large role in it is played by private retirement savings and corporate retirement programs that private businesses organize for their employees.
Funds that go into funds are invested and paid to retirees. But the retirement accounts of civil servants are financed by municipalities from their own budget within the framework of accumulative programs.
However, there are some municipalities, such as small or disadvantaged cities, that are not able to make regular contributions in full in accordance with the requirements of actuarial calculations of pension schemes. Therefore, they have debts to finance their pension obligations. This translates into an increase in liabilities on bonds that municipalities issue to attract liquid funds needed for current payments.
Finogenova explained that at the moment, due to federal incentives, coupon interest on bonds is significantly lower than the yield on securities in which “pension” money is invested. T-herefore, due to the emerging margin, municipalities have the opportunity to sa-ve on pension contributio-ns.
Nevertheless, the expert emphasized that there are significant risks in such schemes. If the profitability of the pension scheme for some reason drops sharply (as it was during the financial crisis of 2009) and it turns out to be lower than the interest rate on bonds, then the debt of the municipality will increase significantly. This is precisely wh-at causes concern against the background of the current situation in the US economy: accelerating infl-ation, exceeding the public debt ceiling, uncertainty in the monetary policy.
Yevgeny Yakushev, head of the laboratory for the development of the pension system at the Institute for Social Policy at the Higher School of Economics, expl-ained such an active incr-ease in the issue of pension bonds by the fact that the deficit of pension funding is most often found in mu-nicipal pension programs. One of the reasons he na-med them is a limited range of other funding sources.
As Yakushev stressed, the budget of cities is usually drawn up in balance or with a deficit, so they cannot afford to dramatically increase funding for the pension program. For this reason, they increase their long-term obligations by issuing municipal bonds.
The advantage of this approach, as the expert explained, is leverage – a leverage with which current funding can be carried out without withdrawing ass-ets. After receiving income from investment activities, part of the funds is used to pay off obligations on bo-nds, the other – for further financing and investment.
But, like Finogenova, Yakushev noted that any work in the financial market is the risk of either losing or losing income.
Russia does not risk
The expert emphasized that in Russia there is a less risky system of pension financing, it is rather conservative and tightly regulated by the Central Bank. Therefore, he believes that the application of a system of defined benefits, which creates an actuarial deficit, is not possible in Russia.
For these reasons, the volume of investment programs carried out by Russian NPFs is significantly less in comparison with the United States. The scientist summarized that the list of investment instruments is rigidly fixed, which makes it possible to neutralize risks, but at the same time takes away the opportunity for greater profitability from clients.
Yakushev clarified that when a company has long-term obligations, it forms a certain investment portfolio for them. Also, regulation in the United States implies that a company discloses both the size of its portfolio and the size of its obligations. (PBO and MVCA balance lines).
For this reason, the management of the company in the United States has a lot of freedom. She may have her own plans, for example, she can hold assets until the market rallies. This is possible because the supervisor does not require companies to have 100% liquidity for financing. The main thing is to declare and reflect in the balance sheet the budget recovery plan.
Comparing two pension systems, Russia and the United States, the expert identified similarities. As Yakushev noted, as in the West, Russia has introduced mandatory actuarial assessment of pension programs, risk-oriented supervision and stress testing. Therefore, we can conclude that Russia is implementing the practices of the accumulated world experience in regulation. In the States, you can invest in a much wider range of assets, there is more liberal investment legislation.
This was confirmed by VTB Pension Fund. The fund, according to a representative of the organization, invests in reliable corporate bonds and government securities with an insignificant share of shares and deposits. The fund’s main source of income is interest income. Also, VTB Pension Fund said that the investment policy of NPFs in any country depends on market conditions and regulatory policies. Since there are significant differences in interest rates and foreign exchange controls in Russia and the United States, investment policies differ significantly.
Yakushev also stressed t-hat in the United States, the presence of pension funds with long-term investments on the market is a well-known economic advantage. They act as a kind of buffer that maintains the stability of the stock market. There are short and long investors in the market. PFs keep liquid funds until the moment of strong movements in the market, then they buy assets that have fallen in price.
The expert said that it would be possible to implement this system in our market if the activity of pension funds was higher. But unfortunately, the Rus-sian economy cannot boast of stability in comparison with the US economy, and in the Russian Federation there is much less stock m-arket volume. Russian inv-estors avoid long-term inv-estments associated with risks; if possible, they imm-ediately withdraw assets for current consumption.
Of the positive aspects of the Russian pension system, Yakushev named the fact that now the major large companies have corporate pension savings (Gazprom, Lukoil, Russian Railways ). Accordingly, the employees of these companies already have not one, but two pensions. One is general, fully funded by the state, and the second is an additional one provided by companies.
Yulia Fenogenova from the Plekhanov Academy named the main differences between the system in Russia and the United States. The Russian system is of a distributive nature, and the deficit of the RF Pension Fund is covered directly by the federal budget. In the United States, the system is decentralized and accumulative.
The expert also drew attention to the fact that in conditions of high inflation and an unstable economy, accumulation systems fail, therefore, in the Russian Federation, with the current state of the stock market, it cannot be the main one.
She also talked about the strengths and weaknesses of such a system. Its plus is that it allows you to accumulate long-term money and invest it in the real sector, and its minus is the unpredictable volatility of the return on investment portfolios in the event of a financial crisis. However, the United States is experiencing low inflation and high GDP growth, which allows accumulative pension schemes to develop.
Returning to Russian realities, Fenogenova said that Russia could adopt some investment strategies in relation to voluntary pension savings. However, the Russian stock market is still far from the American one in terms of its capitalization, and the economy cannot yet boast of stable growth rates.