Non-state pension fund (NPF): ready to face the crisis, 2008

Non-state pension funds proved to be the most stable financial institutions in the face of the crisis. The funds are protected from the necessity to fix losses during the crisis by the long-term nature of their liabilities and by the state support - due to their social importance.

The market of private pension funds, 2008

According to Expert RA, consolidated volume of reserves in non-state pension funds in 2008 dropped down to 440 bln rubles, and pension accruals - to 35 bln rubles. 2008 losses of NPF management companies averaged at least 20% in pension reserves and 15% in pension accruals.

The funds had to make up for the losses with the help of insurance reserves and property meant to secure its constitutional activity. In the current year the low ratio between insurance reserves and pension liability coverage reserves together with insufficient constitutional activity property will hinder normal development of the funds. By October 2008 over 25% of the bigger funds had extremely low constitutional activity property (below 5% of pension assets), which is absolutely critical.

Legal increase of minimum level of the constitutional activity property would cut the number of existing funds - including merger operations. By the end of the year Expert RA expects the market to be left by about 20-30% of its players - no more than 150 funds would stay on.

According to the current legislation, as of July 1, 2009 all funds involved in mandatory pension insurance will lose their licenses, unless their constitutional activity property reaches 100 mln rubles, and pass their pension accruals to the Pension Fund of Russia. By the end of 2008 only 79 out of 105 funds, licensed to be engaged in mandatory pension insurance, satisfied these demands (Expert RA).

Many funds have refused to operate in retail giving preference to a corporate segment, where only several larger funds demonstrate stability and strength. Due to frozen social programs at enterprises and possible refusal of the market participants to ensure yield the market development would be slow.

To be able to grow the pension industry should expand its investment declaration in favor of conservative financial instruments. Proposals of Federal Financial Markets Service and National Association of Pension Funds to the RF Ministry of Finance should be instrumental in minimizing fund risks.

Expanded investment declaration through maximized share of conservative instruments (deposits in the first place) and infrastructural obligations should help minimizing risks in volatile period at the security market and fostering development of long-term financial resources.