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. Last Updated: 07/27/2016

Pensions Shrink While Officials Stall Reform

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The pensions of 250,000 Russians are trapped in limbo in the State Pension Fund and are slowly but surely losing value to inflation, only because the government has proven completely incapable of confirming the standard form for contracts between state pension organizations and private pension funds. Yet the law stipulating the State Pension Fund's participation in pension reform passed back in summer 2002. In other words, officials have had 2 1/2 years to confirm these crucial documents and implement reforms.

The market is reacting calmly to the problem, which was not unexpected. Everyone recalls how in late October 2003, future pensioners received letters from the State Pension Fund offering them the opportunity to choose a private pension fund for their savings. All they had to do was reply by Oct. 15. The State Pension Fund justified this error by claiming that it did not have enough money for stamps, which is why letters arrived three months late.

In summer 2004, when Russians were given the choice of keeping their money in the State Pension Fund, the government did not confirm the standard form of the advisory letters that funds needed to enroll clients. As a result, the State Pension Fund had only a few days, not three months, to conclude contracts with future pensioners.

Now, for the very same bureaucratic reason, the money of those who, despite everything, managed to transfer their savings to a private fund, cannot be invested anywhere. At the end of the year, officials will once again have to tell the public how pension savings are multiplying in state hands and how low yields are at private pension funds. Perhaps this mess was not premeditated sabotage, but simply official foot-dragging, aggravated as a consequence of administrative reforms.

On the other hand, one can't help but notice an obvious conflict of interests. Neither the State Pension Fund nor Vneshekonombank, which manages the money of those who do not express a preference, have any interest in creating competition in the pension market. Article 35 of the Law on the Investment of Pension Savings states that the government should "take measures to prevent the emergence of conflicts of interest in relation to persons in authority who are involved in the process of regulation, control and monitoring in the sphere of mandatory pension insurance."

Yet, the government officials who are coordinating the creation of a standard contract between the State Pension Fund and private pension funds have no clear connection to either the State Pension Fund or Vneshekonombank. And Prime Minister Mikhail Fradkov is apparently unable to think abstractly.

This comment first appeared as an editorial in Vedomosti.