Banks to Borrow From Pensioners

The government wants to turn a profit on the State Pension Fund's money by allowing private and state banks to borrow billions of rubles from the fund at a competitive interest rate.

A brainchild of the Labor Ministry, a pilot project will start with an initial tranche of 4 billion rubles ($138.5 million) that will have a six-month repayment date, ministry officials said. The project is expected to begin June 1.

Vyacheslav Batayev, an adviser to Labor Minister Alexander Pochinok, said the project, which will eventually include a savings component, has several objectives.

"It will test the various mechanisms of investing [money from the State Pension Fund]. At the same time, it will help the government overcome its fear of investing in the financial markets and reduce pensioners' fear of pension reform," said Batayev.

Batayev, however, said the project would only be a success if participating banks can guarantee a 12.5 percent to 15 percent annual return — roughly 300 million rubles after six months.

The plan is a result of Labor Ministry-led working group that included the Central Bank, MDM-Bank, state-controlled Vneshtorgbank, RESO-Garantia insurance agency and the representatives of Independent Pension Fund.

At the end of last month, the government responded with a letter asking the Central Bank, together with the Finance, Justice and Economic Development and Trade ministries, to iron out the final version of the proposal.

Bank executives polled Wednesday gave enthusiastic thumbs up to the idea of receiving money from the Pension Fund, one of the largest financial institutions in the country.

"There is not a single bank that can honestly say it is not interested in this opportunity," said MDM-Bank's representative Anatoly Meszheryakov.

Alexei Kabanov, a deputy treasurer at Vneshtorgbank, said banks always welcome additional means of financing.

"All commercial banks are interested in attracting long-term funds," said Kabanov, who was a member of the project's working group.

Pension Fund officials, however, are not thrilled about the idea.

"The Pension Fund is a state system, its investments should be guaranteed by the state and be based on a government decision," said Vladimir Vyunitsky, adviser to State Pension Fund head Mikhail Zurabov. "So far, the government has not instructed us of any decisions."

"We have serious doubts about this [experiment] because the bulk of the fund's money goes toward present payments," he added.

The fund's hand-to-mouth approach means that as employers dish out 28 percent of their employees' salaries to the fund, the money immediately flows into the pockets of retired people.

Last year, the Pension Fund collected 341 billion rubles while it paid out a total of 331 billion rubles.

The 10 billion-ruble surplus is not earning interest.

It is just sitting in the federal Treasury, Vyunitsky said, because it has already been allocated for 2001 pension payments.

This year, the fund expects expenditures of roughly 490 billion rubles on revenues of about 500 billion rubles.

The difference — roughly 10 billion rubles — is what commercial banks are eyeing as the initial investment into the program, which will be put to a tender some time after June 1.

The rules of the tender approved by the government require participating banks to be five years or older, have at least 3 billion rubles of working capital, and have no outstanding debt to the federal budget, among other conditions.

According to Batayev, less than 15 banks will qualify.