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Paradise pension: why are the authorities expanding the investment opportunities of NPFs
The Bank of Russia has announced large-scale changes to the rules for investing pension reserves of non-state pension funds (NPFs). The regulator proposes to abolish key limits on investments in securities, expand the list of permitted assets and increase the share of risky instruments. Experts assess the consequences of the proposed reform in different ways, noting both new growth opportunities and potential threats to the pension savings system. Details can be found in the Izvestia article.
New rules for pension funds
The Central Bank proposes to simplify and expand the rules for investing pension funds. Draft instructions of the Bank of Russia (available to Izvestia) cancels uniform limits on investments in shares, convertible and subordinated bonds, as well as bonds without maturity and in securities of subjects of the Russian Federation and municipalities.
At the same time, the list of shares that NPFs can acquire outside the risk limit is expanding. Currently, only 47 Russian issuers that are included in the Moscow Exchange index are available to funds. Now they want to add liquid shares traded on the stock exchange, the issuers of which have a reliable credit rating of about 60. This will allow NPFs to participate more actively in the equity financing market, the regulator points out.
At the same time, a rule is being introduced that no more than 5% of funds can be invested in one borrower or a group of related companies (previously it was 10%). This is done to avoid holding too much money in one hand and reduce risks.
The press service of the Bank of Russia explained to Izvestia that the envisaged relief would be offset by increased requirements for stress testing, as well as current regulations on the fiduciary responsibility of non-governmental pension funds (responsibility for managing pension savings in the interests of clients). The directive is expected to enter into force on January 1, 2027.
The Central Bank's proposed increase in the limit on risky assets from 7% to 15% will give non-governmental pension funds the opportunity to seek more effective investment solutions, which in the long term can significantly improve the well-being of future Russian pensioners, Senator Oleg Golov explained to Izvestia. He notes that the planned two-year transition period will allow funds to adapt to the new rules without disrupting the market and pension savings.
—The Central Bank's proposals reflect the strategic vision of the pension system development — expanding the investment opportunities of NPFs while strengthening control over pension savings," Senator Golov emphasizes. — The plans for the development of this initiative include further improvement of mechanisms that will ensure stable growth of pension savings and protect the interests of future retirees.
Increased profitability and new opportunities for retirees
Changing the requirements for the composition and structure of investment portfolios of non-governmental pension funds in terms of expanding the list of permitted assets for investing pension reserves may well lead to an increase in the profitability of these portfolios, according to Expert RA.
NPFs will have the opportunity to further diversify their investment portfolios, which may contribute to their more active work in the equity financing market and, as a result, the development of the stock market, says Ekaterina Serova, Director of Ratings for insurance and investment companies at Expert RA.
In turn, Olga Izyumova, Deputy General Director of Sberbank, notes that the active development of the long-term savings program has attracted mass consumers to the system of non-governmental pension provision.
— This is a powerful challenge for our entire industry. The main thing today is to gain and maintain people's trust. All further work on the formation of a culture of long—term savings in Russia will be based on it," the expert points out.
Liberalization and control: balancing interests
The market has been waiting for an opportunity for NPFs to participate more actively in promotions, and now such opportunities are emerging.
Alexander Zaitsev, CEO of Atomic Capital, notes that the Bank of Russia defines only the framework rules for the functioning of NPFs.
— The financial result of the funds depends on the specific managers. If we analyze the median, their profitability over the past year was 10.1% per annum when managing pension savings and 10.3% per annum when managing pension reserves, the expert states.
Most of the NPFs' funds are still placed in debt securities, but the new rules will allow to increase the share of shares and increase profitability in the long term.
— Allowing NPFs to take a more active part in the stock market is a long—awaited initiative by all market participants, which will make it possible to achieve significant progress in solving the problem of the lack of "long money" in the economy by ensuring a significant influx of institutional capital into the stock market. At the same time, this will increase the profitability of NPFs' investments, since in the long term equity instruments always outperform debt instruments in terms of return on investment," Zaitsev notes.
Risks and challenges of the reform
Not all experts share the optimism about the reform.
"The Bank of Russia is proposing the liberalization of investment strategies for non—state pension funds, presenting this as a way to increase the profitability of pension reserves," says Albert Bakhtizin, member of the State Council Commission, director of the Central Economic and Mathematical Institute (CEMI RAS). — However, in fact, we are talking about the redistribution of investment risks from management companies to future retirees.
According to the economist, the increase in the limit on "hard—to-assess assets" from 7% to 15%, the abolition of uniform restrictions on investments in risky instruments is still a rejection of the previous model, which previously ensured the relative stability of the pension system.
In his opinion, it is premature to talk about a significant and guaranteed increase in pension payments: profitability may rise, but it will be volatile, speculative and uneven.
Bakhtizin notes that the risk reduction mechanisms look declarative: there are no provisions on independent audit, public accountability, citizen participation in the control of pension assets and sanctions for inefficiency or transparent KPIs of funds. As a result, NPFs receive carte blanche to play a more aggressive game in the market without real consequences in case of failure, he notes.
Impact on the market and the well-being of pensioners
The changes will only affect pension reserves formed voluntarily.
Yulia Oreshchenkova, Deputy Director of the Scientific Research Center for the Development of the State Pension System, emphasizes that we are talking only about pension reserves, that is, assets formed voluntarily. They account for 26% of the total portfolio of pension funds of NPFs, or 2.1 trillion rubles. If we talk about people, these are the funds of 6 million people.
The active participation of NPFs in the bidding can stabilize the stock market, experts say. It can also potentially help reduce stock speculation.
— The task of increasing the profitability of investing pension reserves will involve the risk of increasing the volatility of pension portfolios. Thus, from the perspective of insured persons, the effectiveness of the changes will depend on the ability of a particular NPF to correctly balance risk and profitability," notes Oreshenkova.
In general, the growth potential of the profitability of pension reserves is assessed ambiguously by experts. According to MSU Professor Svetlana Khmelevskaya, the innovations relate only to pension reserve portfolios, and the weighted average return on such portfolios in 2024 was 8.2%, the median was 10.3% with inflation of 9.52%.
— Returns above inflation were provided by 24 out of 37 funds engaged in non-governmental pension provision or the formation of long-term savings. It is assumed that an increase in the share of risky assets will be able to increase the average yield to 9-11% per annum," says Svetlana Khmelevskaya.
"Reducing requirements should not increase the risks to pension reserves, so lowering investment thresholds is accompanied by stricter risk management requirements," says Antonina Levashenko, head of the Gaidar Institute's analysis of best international practices. — Therefore, the share of assets that can be invested in one company or a group of affiliated companies is reduced from 10% to 5%.
In turn, Olga Panina, Head of the Department of State and Municipal Management at the Financial University under the Government of the Russian Federation, is encouraging that the reform will result in increased liquidity and investment attractiveness of the Russian stock market. At the same time, higher pension savings will boost investment in the economy, which should boost the growth of individual industries.
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