There is a distribution savings pension system in Russia. Thus, formally, the pension of citizens is divided into insurance and saving parts.
The insurance pension is formed in points, pension coefficients, and real money goes to payments to current pensioners. Such a scheme is called the generational solidarity system; it is assumed that in the future you will be paid an insurance pension from the contributions of your children and grandchildren.
The number of points depends on the contributions paid and employment record, they explain in the Pension Fund of the Russian Federation (PFR). It is possible to calculate the approximate insurance pension amount in the official calculator.
The saving part is money that is saved up in a special personal account or separate account in a private pension fund (NPF).
The pension is formed from insurance contributions, 22% of the employee’s salary, which the employer transfers from his funds to PFR. Until 2014, these 22% were distributed between insurance (16%) and funded pension (6%).
The authorities have frozen the funded part as of 2014, and now all deductions (22% of wages) form the insurance pension. The points accrued are greater than when deducting 16%, as it has been before. The moratorium has been extended to 2021 and is to be extended for another year.
Thus, people have the part that they have managed to save up to 2014, and it increases due to investment income, the money that the Non-state Pension Fund earns for you by placing your own savings in the market.
The main goal of the guaranteed pension plan has not changed; the authorities want to give Russian citizen the opportunity to save for future retirement due to personal contributions. And the main system feature is exclusively voluntary annexation.
To become a member of the state pension plan (SPP) and start saving, the employee will have to submit an application to the pension operator. It is a centralized system that will administer people’s contributions and will keep a register of participants in the state employee benefit plan.
The residents will be able to change their chosen fund at any time. According to current legislation, however, if you change the fund more than once every five years, you lose investment income for the unfinished five-year period.
The agreement on participation in the state pension plan will be considered concluded after the citizen begins to actually transfer the money.
It will be possible to transfer as much as you like to the GPP, even the entire salary. The contribution amount can be set either as a percentage of the salary, or in absolute terms (the exact amount). The rate of deductibles can be changed as many times as you like.
In addition, the project provides for free look period, when it is possible to opt out of participation in the SPP within six months after the first installment. In this case the money will be fully returned.
It will be also possible to suspend the payment of contributions as many times as you like, but no more than once in five years. The contributions can be renewed any time as well by sending the application to the pension operator.
All available savings in the compulsory pension insurance system can be transferred to the SPP and further topped up.
The SPP funds will be insured by Deposit Insurance Agency (DIA). And if the insolvent non-state pension fund loses its license, the authorities compensate the entire amount of contributions received. However, the protection does not apply to investment income.
The authorities again developed a mechanism that guarantees a break-even point of savings to a SPP participant. Non-state pension funds (NPFs) will have to record the amount of savings in the account at least once every five years; they are already doing that. The minimum balance consists of the amount recorded for the previous five years, plus new contributions, plus earned income. Even if the fund invested unsuccessfully and lost from investments, by the end of five years, the person’s account should still not be less than the amount that was at the term beginning. The NPF compensates the difference.
The SPP system implies the possibility of early accumulation withdrawal in the event of a difficult life situation, disease that is considered socially significant. Besides, the unspent SPP funds will be inherited on a common basis. In general, the funded part of the pension can be inherited or bequeathed even now. We wrote how to do this.
A GPP participant will not have to pay personal income tax (13%) from the money transferred to the system, but only if the contribution is not more than 6% of his income. Employers will also benefit. They can co-finance the employee's funded pension and deduct these expenses from the income tax base. According to the Finance Ministry, the benefits will cost the state budget 10 billion rubles by 2030.
If a person does not join the SPP, he will receive only the insurance pension and one that he managed to save up to 2014 with investment income, if there are no new changes in the pension system.
Photos are from open sources.