Pension Maneuvers Will Bear Losses

Pension maneuvers of the government (last week the President signed the law on the moratorium on pension savings for 2016) could result in losses of 2 trillion rubles for the financial market. Such assessment has been made specially for 'Kommersant' by National Rating Agency (NRA). Painful blow will be inflicted on the debt market, which will miss about 10% of its volume. On the scale of the banking system those losses are not so high, although comparable to recapitalization through Federal Loan Bonds (OFZ).

The government introduces a moratorium on pension savings for the third year in a row. This time, it is additionally planned to get a special fund of 344 billion rubles. It means that 6% of an employer's contributions go to the insurance part rather than to the funded pension. The Central Bank has recently noted that there are risks of extending the moratorium in 2017 and the following years, due to the large deficit of the Russian Pension Fund.

Representatives of legislative and executive authorities have repeatedly stated that the insured people would not suffer from the maneuvers, because their pension rights will be included in the insurance pension. The question, of course, is debatable, given the scoring system provided for this part, but the moratorium has really affected people that will receive much less investments. This is primarily concerns the stock market and banks, in which non-state pension funds (NPF) and VEB invest savings.

According to NRA, until 2018, bank losses could reach 500 billion rubles, and stock market losses – 1.5 trillion rubles. Head of NRA's Research Karina Artemyeva says that it is an approximate forecast, since the calculations were made given the current structure of investments of pension savings in assets. In addition, there is no way to know the exact conversion data of the insured and a number of other indicators. The Chairman of the PARTAD Committee on Internal Control and Risk Management Alexander Baranov gives similar data. 'The losses of the 2014 moratorium amount to 553 billion rubles, of the 2015 – more than 650 billion rubles, and about 285 billion rubles – from the 2016 moratorium. So it's a total of about 1.5 trillion rubles over the three years,' Mr. Baranov estimates. This is comparable with the amount of pension savings in NPFs (1.67 trillion rubles as of October 1, 2015).

Head of Nordea Bank's Analytical Department Dmitry Fedenkov believes that, since we are not talking about the withdrawal of existing investments in the stock market, one may only talk about a hypothetical impact of the moratorium. He notes that in recent years on the market a real and strong impact are making oil prices and political risks, economic sanctions and high inflation, and so on. 'In this 'cocktail' of real factors the possible impact of the moratorium seems vague,' the analyst assures. Karina Artemyeva disagrees with him. She believes that the overall presumptive scope of losses is that in the next two to three years there are no any prerequisites for growth of Russian debt and stock markets in the part related to pension savings. She also indicates that of the estimated 1.5 trillion rubles of the stock market losses, 1.3 trillion rubles fall on the debt market, accounting for about 10% of the total market at the end of 2014. Alexander Baranov, too, believes that it is a huge withdrawal of money from the financial market, which will never be repaid.

Regarding the banking sector, the amount of money solely in lost deposits and account balances (investments of pension savings are also made in securities of credit institutions) is comparable with the volume of the program of banks recapitalization through the Federal Loan Bonds (of 1 trillion rubles so far allocated 700 billion rubles). 'The amount of large absolute value, but not critical for the sector as a whole,' says Karina Artemyeva. According to Dmitry Fedenkov, the potential effect of the moratorium on the scale of the banking system will be insignificant. '500 billion rubles of uncollected investments make up less than 1% of total assets of the banking system, which are now at the level of 79 trillion rubles,' he says.

Kommersant, 23/12/2015