Pension Savings Funds Management
Within the framework of the pension reform underway in the country, Vnesheconombank was appointed as State Trust Management Company responsible for trust management of the funded portion of the citizens’ pensions. It primarily concerns those citizens who would not exercise their right to choose a trust management company and opted for Vnesheconombank’s services in this respect. This decision was not made by chance as the Bank is has in-depth expertise in operating on the stockmarket and is actually playing a leading role in the market for Russian currency-denominated bonds, being accountable to the Government of the Russian Federation.
Acting as the Trust Management Company, Vnesheconombank operates on the basis of an agreement made with the Pension Fund of the Russian Federation. The Bank’s activity is controlled by the specialised depository and it is accountable to the Pension Fund of the Russian Federation, the Federal Service for Financial Markets and the Bank of Russia. The United Depository Company was appointed as Special Depository on the tender basis to exercise control over the Bank’s activity.
Trust management aims to secure the protection of pension savings funds transferred to the Bank for trust management.
To this end, Vnesheconombank is authorized to invest pension savings funds only in government securities and mortgage papers guaranteed by the state, the default on which is minimal. Vnesheconombank can also invest in ruble- and foreign currency-denominated funds held in credit institutions’ accounts.
The main objective is to ensure that the yield on the pension savings funds is not below the inflation rate.
To achieve the goal, Vnesheconombank has been making strenuous efforts to devise proposals designed to improve the regulatory framework and upgrade the mechanism of investing pension savings funds. In particular, the Bank has prepared the following proposals to change the pension investment legislation in order to reduce investment risks and ensure sustainable yield that would be at par with the inflation rate. These proposals are intended to:
- expand the list of instruments eligible for investment by the State Trust Management Company to include any Russian bonds guaranteed by the state or those issued against the Pension Fund’s guarantees, as well as bonds of companies controlled by the state and participating in implementing national infrastructure projects;
- grant trust management companies the right to use term and derivative financial instruments to insure investments;
- eliminate or enhance the limit set on the maximum volume of cash funds in trust management companies’ portfolios.
Admittedly, these measures will make it possible to diversify the investment portfolio and help insure the investments already made, thereby ensuring the protection of citizens’ pension savings funds in the event of unfavorable conditions in financial markets. But even despite the fact that the number of Vnesheconombank’s investment instruments is limited, in 2005, the Bank delivered strong performance, with the yield on the pension savings funds exceeding the inflation rate (12.07% versus 10.9%).