Russia Considers Ending Mandatory Pension Program

Russia is weighing whether to abolish its mandatory pension savings program, in which workers contribute portions of each paycheck to a retirement savings fund, according to Reuters.

The country’s State Pension Fund is in funding trouble because Russia has re-directed billions in contributions over the last few years; the program was also hurt by Western sanctions and the state of oil prices.

More from Reuters:

Russia’s economic policy makers are in talks to abolish compulsory contributions to employees’ managed pension funds that had been aimed at sustaining the long-term health of the system, three sources close to the government said.

The finance ministry and the central bank, who for years had resisted the pressure to scrap the mandatory payments because of worries about the future fiscal burden of pensions, have now conceded the point and are crafting ideas instead on how to encourage voluntary retirement savings, the sources said.

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While the move would ease the burden on the state budget, it could potentially reduce funds for long-term investment in capital markets if officials fail to ensure that Russians save for retirement on their own.

Under the current system, the state divides the funds paid by employers for each employee into two parts, with the larger portion going straight to current state pension payments and a smaller part to the employee’s individual pension saving account.

The second part, known as the mandatory accumulative pension, is usually invested in financial instruments by the state or privately-managed funds.

Russia is set to contribute $42.63 billion to its pension system in 2016, a 33% increase over 2015.