The Russian government faces widespread disagreement and scepticism as it takes on the challenge of pensions reform.

The Russian government has embarked on tackling one of the modern economy’s biggest issues: pensioners and how to pay for them. A topic close to the heart of Russia’s central bank governor, Elvira Nabiullina, it is also gaining traction with both the Bank of Russia and the Russian finance ministry, which are working on a joint proposal.

Pension reform is necessary not just for the sustainability of public finances but also for Russia’s capital market. This budding market has seen a growing number of transactions and deal flow in the past few years – in part related to the borrowing constraints of many Russian state-owned entities due to Western sanctions – yet it is still constrained by a small number of long-term investors.

Pension funds would add desperately needed firepower to Russia’s investor base, enabling further capital markets development.

Pension reform brings clear benefits – so why the hesitation? This is a delicate issue for every Russian, as there is still a lot of scepticism about the reform of the system and much debate over the best way forward.

At the Saint Petersburg International Financial Congress in July, it became clear just how divided views are. A panel discussion about the concept of ‘individual pension capital’ easily became the most animated debate in the whole two days.

Discussion points were: what incentives can individuals and employers expect for participating in a new system?; who would be choosing the funds to invest into?; who would have the competence of a central administrator?; would employees be automatically enrolled?; and which international systems might be the best examples to derive the new model from?

Reformers still have a long way to go to reach an agreement to reshape Russia’s pension system but decisions need to be taken – not to mention the even more delicate issue of raising the retirement age – not least for the sake of Russia’s capital market development.

See The Banker’s upcoming September edition for more coverage on Russia and pension reform.


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