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Pension: do it yourself! Where is it better to save for old age?

The Russian government is preparing proposals to increase the retirement age; state pension will be available from 60-65 years. With whom it is better to save for an alternative pension, tried to study.
Pension: do it yourself! Where is it better to save for old age?

Pension of your own

The Cabinet of Ministers will prepare proposals to increase the retirement age and bring them to the State Duma in the shortest term. This was stated by Dmitry Medvedev on May 8 during his speech in the State Duma before voting for his candidacy for the prime minister of Russia. The options discussed now imply a retirement age for women at the age of 60-63 years, for men - 63-65 years. This means that the moment of calculating the pension will be postponed for at least five years. The size of this pension also does not promise to be worthy, especially for those who now earns well. Thus, in any case it is worth taking care of your future pension by yourself. And it is time to start thinking about it at the age of thirty.

There is a wide range of pension products on the market today: non-state pension funds (NSPFs) and life insurers. Most of them belong to the corporate segment: when an employer saves for additional pension of an employee (possibly co-financing with an employee), including it in a social package and considering it as an additional bonus to increase employee loyalty. For example, corporate programs account for 80% of contributions of the Ingosstrakh-Life IC portfolio.

In the corporate segment, the activity of life insurers in the pension market is severely limited due to asymmetric tax regulation with NSPFs, Sergei Faizov, vice president for strategic development of Renaissance Life, noted. "It is more profitable for corporate clients to work with pension funds, whose programs provide tax concessions", the expert explains.

But there are also special programs for individuals, which are becoming increasingly popular as the shape of the future pension reform is getting clearer. "More Russian citizens realize that it is them who should provide their well-being at retirement age in the first place. That is why the long-term products are becoming the driver of the life insurance growth year after year”, says Sergey Faizov, "A considerable part of universal life insurance clients are applying for these programs precisely for capital formation by their retirement". The development of specialized pension savings programs is only a matter of time for life insurers working in the Russian market, he assured.

The general director of Ingosstrakh-Life IC Vladimir Chernikov agrees that due to pension reform and an increase in the level of people’s financial literacy the demand for pension programs targeting individuals will increase in the nearest future.

The key question for a future pensioner is where to take the money intended for a future non-state pension. To answer it, you need to understand what distinguishes pension programs offered by insurers and non-government pension funds.

Pension Construction Kit

The main difference between the pension programs of life insurers and the NSPF is that life insurance programs do not depend on the occurrence of pension qualifications (for example, the retirement age), the payment start date is flexible and is chosen by the client himself. It is you who decide when you "retire", at 45, 50 or 70 years of age. In conditions when finding a job when you are 45 and older is very problematic, this factor becomes an important argument in favor of choosing an insurance program.

Insurers in general, as a rule, offer customers software construction kits, where you can choose any option at your discretion. The policyholder has the opportunity to independently determine the periodicity and payment period, the currency in which the contributions will be made, rubles or the equivalent at the rate of the Central Bank (NSPFs take only rubles), the frequency of contributions, the size of the insurance cover. The client can receive a lump sum payment of the entire amount, issue a life-long program with regular rental payments or limit the rent to a fixed term (5-30 years).

Life insurers, unlike NSPFs, whose profitability depends entirely on the investment strategy success, offer two types of programs: with a predetermined stable yield and with potentially higher, but non-guaranteed return. "NSPFs currently mostly sell defined contribution programs. In such programs, the client does not know the size of his future pension at the time of signing the contract", says Nataliya Belova, head of individual insurance products "Sberbank Life Insurance".

As a client of an insurance company, you decide when you retire, whether at 45, 50 or 70 years of age.

"The defined benefit schemes are not popular with NSPF clients and the funds themselves, since such pension programs require compliance with the procedure for making contributions within a significant period", explains Yekaterina Shishkina, general director of the Social Fund NGO Socium. “Customers prefer programs that are not tied to hard payment schedules. In this case, the pension is calculated from the actual result without penalties or the risk of default of each of the parties. Another option is instant funding by transferring a lump-sum contribution to ensure the payment of a pension".

The fund offers all types of benefits: lifelong, including a consistent payment to two participants (the family scheme) and payments with a guaranteed period; term payments as savings (with inheritance of the balance for the whole period of payment), and insurance (in case of death of the participant, payment to the heirs is not made); payment before the account is exhausted. Term payments are offered with different conditions in terms of termination, obtaining a cash surrender value, depending on the initial contribution, the accumulation period, etc. For enterprises, both schemes with registered pension accounts and a scheme with a joint pension account are available.

"The overwhelming majority of individuals choose schemes with urgent payments, which make it possible to influence the final size of the pension by adjusting the term and taking into account the possibility of inheritance over the entire term of the agreement," Shishkina said. “Depositors, legal entities, are more focused on lifetime benefits for employees, participants under the pension agreement, as the problem of additional social support for the whole period of life after the completion of work is being solved, the expert notes.

"Life insurance products, among other things, contain an additional component in the form of insurance protection and allow not only save money, but also protect from significant financial losses in the event of unforeseen health events", emphasizes Vladimir Chernikov.

"Our program provides for the possibility of additional insurance coverage in case of adverse circumstances, such as payments for injuries or diagnosis of especially dangerous diseases, as well as early start of disability payments", says Nataliya Belova,  Sberbank Life Insurance. "About 90% of our customers choose rent for a term; lifetime rent is chosen by no more than 10% of clients, 60% of clients take additional insurance protection".

Thus, the insurers have great variability for the moment of retirement; there is a guaranteed amount of payments and insurance protection, which NSPF does not have. But the products of non-state pension funds are simpler and cheaper, the client is free in terms of the periodicity of making money to the pension account, he can bring in the contribution when he has money or pass the date when he has no money available. Some life insurers have the opportunity to get a vacation thanks to changed financial circumstances. For example, the company MetLife automatically pays for the customer for some programs, if he missed the contribution, but it is formalized as a mini loan. However, in general, the timing of contributions for pension programs of insurance companies is more regulated than that of NSPFs.


The possibility of obtaining a tax deduction from an annual contribution of up to 120 thousand rubles and a special status of funds (do not divide in case of property disputes) are typical for products of both pension funds and insurance companies.


Inheritance in case of death of a pensioner in an insurance company is much simpler: the beneficiary specified in the contract receives a payment within 14 days. In the event of the inheritance of pension funds in the NSPF, the timeframe for obtaining money is not clearly defined: the assignee/heir must reassign the contractual rights, and then terminate the contract in order to obtain the redemption amount.

The NSPF client is free in terms of the periodicity of making contributions to the pension account, he can bring in the contribution when he has money.

Whom to rely on

When you trust your money to the financial institution for many years, obviously, the question of company reliability and your funds’ safety becomes important.

Executive Director of NSPF Safmar Yevgeny Yakushev draws attention to the fact that NSPFs put pension savings on a separate balance sheet, and in the insurance company they are immediately sent to the property. "The NSPF's remuneration is calculated from earned investment income and is limited by the legislation; and in insurance business on the contrary, everything that is not paid to customers, forms the profit of the insurance company", he explains.

"Yes, NSPFs put pension savings on a separate balance sheet, and the insurers refer them as their own property from, but this was relevant when NSPFs were non-profit organizations", Timur Gilyazov, director of strategic projects at MetLife, objected. “Now all NSPFs have already passed the corporatization (or will in the nearest future) and after a while they will be able to make a profit. The factor of a separate balance of savings is no longer an issue".

Timur Gilyazov believes the insurance pension products are more reliable: "There is no probability of failure to pay for pension programs for any reasons, for example, in risky programs, when the insurance event simply did not come. And the terms of payment are known by the client in advance, they are stipulated in the contract".

The risks of leaving the life insurance market are extremely low. The requirements for the minimum charter capital of the IC are significantly higher than for NSPFs (240 million rubles against 150 million rubles), there is a specialized bankruptcy procedure for insurers, the actual deficit is being paid off automatically from own funds. In NSPF, it is first paid out of the insurance reserve, then through a targeted contribution by the decision of the fund council. "Over the past five years, many NSPFs have been ruined, but I can only recall one life insurance company that ended as bad as them", Gilyazov reminds.



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