Freezing the funded part of the pension until 2020
The pension issue has been haunting the minds of Russian citizens for decades. This is no coincidence, because the legislators themselves seem not to keep up with the rapid and endless changes. In 2002, the pension was divided into two parts: insurance and funded. Now people have the opportunity to choose their own accrual scheme. But, not having time to gain momentum, the funded part of the pension was frozen until 2020. What does it mean? What will the pension amount consist of now? What to do to those citizens whose funds fell under the moratorium? You will find answers to questions in this article.
About the pension system in simple words
Every working person who receives formal wages for his work knows about the existence of income tax. The salary of an employee of each organization is forcibly reduced by 13%. This money goes to the regional budget, which then distributes it according to need. Funds go to:
- social sector;
- Pension Fund.
If we summarize these contributions and translate them into interest, it turns out that each employee deducts from his salary as much as 43%. But how is this possible you ask? Very simple. The fact is that when calculating wages, the employer independently transfers 22% to the pension fund for his employee, 5.1% is allocated to the health insurance fund, and 2.9% is deducted from social insurance. And in the pay sheet a person sees only 13%, but the total percentage is 43. In simple words people take a double tax: first, by 30%, reducing wages, and then also taxing the remaining amount of 13%.
22% of accounting deducts PF. Of them:
- 10% are insurance payments;
- 6% - base rate;
- 6% is transferred to the funded part.
The funded part is located in non-profit organizations (NPFs), which can invest your funds, increasing the final amount. What does it mean? And the fact that the NPF manages your funds by buying securities, or by operating funds in other legal ways. Thus, for your money, NPFs receive interest, part of which is accumulated in your personal account.
Important! The possibility of accumulating pensions in NPFs is negotiated in advance by including the relevant clauses in the contract.
Savings system for citizens
The funded scheme is very attractive, since it is possible to index pensions without the direct participation of the owner. Therefore, in 2002, people everywhere began to conclude agreements with non-state pension funds on favorable terms. These actions led to the "impoverishment" of PF funds by reducing deductions and transferring them to NPFs. The Pension Fund was forced to take subsidies from the state budget to pay off debts to pay funds to existing retirees. And this led to an increase in the burden on the state budget, and forced officials, together with specialists from the Ministry of Finance, to reduce funding for certain social structures.
By 2013, the constant redistribution of funds from the state budget led to problems in financing the medical and educational sectors. Therefore, President Vladimir Putin, at a cabinet meeting, made a proposal to temporarily freeze savings funds and suspend the entire program as a whole. After the meeting, a bill appeared, and a month later a government decree was issued that imposes a moratorium on savings for citizens until 2015. The relevant amendments were made to article 33 of the Federal Law on compulsory pension insurance.
The fate of savings: news from the State Duma
Freezing savings for one year 2014 is not over. In the subsequent period, parliamentarians, by their decisions, extended the moratorium from 2015 to 2017. The current Prime Minister of the country, D. Medvedev, agrees with this state of affairs.
In the current crisis situation, first of all, we need to think about the possibility of maintaining the financial position of the country that we had in the pre-crisis time. This also applies to the pension system. A funded system was created for citizens. And also, for citizens it must be suspended. It is not possible for independent pensioners to pay pension benefits to current pensioners on their own, and constant borrowing from the state budget only leads to a worsening of the situation in other sectors. Therefore, temporary freezing of the funded system is a necessary measure. Subsequently, the country will overcome the crisis, and then the system will resume again. - D. Medvedev
What awaits citizens in 2020: the latest news from the State Duma
The end of 2017 was waiting for all people, some of whose pensions lie on the shoulders of NPFs. The end of the year should mark the end of the moratorium on accumulation. But that did not happen. The president of the country from TV screens said that it is planned to extend the moratorium for an indefinite period. This was followed by disappointing news from the State Duma: the 413 decree extends the moratorium until the end of 2020. This means that the next lifting of the moratorium should be expected in early 2021.
Freezing savings in 2020: how to return funds?
Many people who express opinions on the Internet tend to believe that savings can be returned to their rightful owners. But no less adherents of the opposite side: the frozen finances will remain in the accounts of NPFs, there is no opportunity to return them. And how are things really?
The latest news is: the current moratorium does not allow the accumulation of funds in NPFs. All the money goes to the PF to pay pension benefits to existing pensioners. But you can still withdraw funds. There is a loophole for citizens entitled to this money. These are the people:
- in a difficult situation (serious illness or illness of a close relative);
- lacking livelihoods;
- relatives of the deceased, whose savings were stored in non-state pension funds;
- persons obliged to return money to their debtors under the relevant contractual obligations.
The remaining categories of citizens cannot withdraw the amount from their personal account in NPFs.
An alternative to a funded pension for citizens - what does it mean?
The new idea of reforming Russia's pension sector was considered at a meeting of representatives of the Ministry of Finance and the Central Bank. The proposal to introduce a new bill on individual pension capital has been considered. IPC, as Finance Minister A. Siluanov so briefly called the new system, is designed to provide Russians with an increase in pension payments in the future.
According to preliminary data, after the implementation of the IPC, people will automatically switch to this scheme. Article 158 of the Civil Code provides as follows: a citizen’s silence is recognized as an expression of his will to complete a transaction. And this means that people who did not want to participate in the new system automatically become its participants. But there is still an opportunity to exit IPC: by writing a waiver, you will be expelled.
The bill is tempting. The Ministry of Finance claims that supposedly citizens who have frozen funds in private pension funds will be able to transfer them to the IPC. For legal entities, there are also "concessions": those employers who attract more people to the IPC are entitled to reduce tax payments. For information, "physicists" also promise to reduce personal income tax.
The freezing of the funded part of pensions began in 2014 and will continue through 2020 inclusive. The system operated only 10 years, so it was not possible to find out its effectiveness. Since the beginning of 2020, the government has promised to introduce an IPC, which will cover the expenses that people incurred with the arrival of NPFs. But it’s still too early to confirm this innovation: the State Duma also “touted” funded pensions, without understanding the possible consequences. Or maybe IPC is nothing more than a continuation of the funded system? It is not clear yet. The Russians have to wait for 2020.