Non-state pension provision in Russia: non-state pension funds from an economic and social viewpoint May 16, 2005 Moscow, ...
<ul><li>Demographics/Pensions in Russia – wrap up </li></ul><ul><li>NPFs – a variety of roles and principles </li></ul><ul...
Demographics. Pension reform in Russia - wrap up <ul><li>Around 65 Mio people out of 130 Mio </li></ul><ul><li>“ Optimal” ...
Pension Funds - Variety of Principles <ul><li>Foreign experience in non-state pension provision </li></ul><ul><li>- Corpor...
Pension Funds - Economic Role <ul><li>NPFs are institutional investors with considerable resources and the source  </li></...
Pension Funds - Social Role <ul><li>Ensure additional support to employees after retirement (currently 13% of the </li></u...
Raiffeisen expertise
Raiffeisen Group Leadership in CEE/Russia <ul><li>1996 -ZAO RaiffeisenbankAustria (RBRU) started operations in Russia  </l...
Pension & Asset Management Products 2 nd  pillar  Labor pension cumulative part 2 nd  pillar  Professional pension (in 200...
Legal Investment Constraints 3 rd  Pillar pension reserves 2 nd  Pillar pension savings <ul><li>0-50% </li></ul><ul><li>ma...
<ul><li>RC investment philosophy principles: </li></ul><ul><li>Active investment management </li></ul><ul><li>Long-term re...
Discussions of Corporate Pension Plan Issues
Corporate pension plan issues Should a potential Participant stay with the company for a certain minimum period of time be...
General Tax Considerations <ul><li>Changes to Chapters 23 and 25 Part Two of the Tax Code effective January 1, 2005  </li>...
Our CVs Dina Zharova-Berbner – Chairman of the Board Joined in 2004; started in financial industry in 1995; 9 years experi...
Back up slides
<ul><li>NPF Raiffeisen offers the following defined-contribution corporate pension  </li></ul><ul><li>schemes: </li></ul><...
Forms of Pension Benefit Payment <ul><li>Life-long pension benefit  means that you may receive pension benefit for the dur...
Sample Participation Case (Cliff Vesting) Participation details : Birth date:   1965 Age:   40 years old Gender: Male Star...
Sample Participation Case (Graded Vesting) Participation details : Birth date:   1965 Age:   40 years old Gender: Male Sta...
Individual income tax consequences Agreement in  his/her own favour Pension benefits Surrender value Agreement in favour  ...
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HR4_Raiffesen_presentation.ppt

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HR4_Raiffesen_presentation.ppt

  1. 1. Non-state pension provision in Russia: non-state pension funds from an economic and social viewpoint May 16, 2005 Moscow, Russia
  2. 2. <ul><li>Demographics/Pensions in Russia – wrap up </li></ul><ul><li>NPFs – a variety of roles and principles </li></ul><ul><li>Raiffeisen Group experience in the Pensions & Asset </li></ul><ul><li>Management Industry </li></ul><ul><li>Corporate Pension Plan Issues </li></ul><ul><li>Several tax considerations </li></ul><ul><li>Contact Info </li></ul><ul><li>Back up slides </li></ul>Content
  3. 3. Demographics. Pension reform in Russia - wrap up <ul><li>Around 65 Mio people out of 130 Mio </li></ul><ul><li>“ Optimal” ratio is above 3-1 to support pay-as-you-go pension system </li></ul><ul><li>Current ratio in Russia and most Western countries is 1,6-1 </li></ul><ul><li>Russian Government’s forecast for 2020 is 1-4 (working individual to </li></ul><ul><li> retirees respectively) </li></ul><ul><li>Top 20 of non-state pension funds as to the total volume of transferred pension savings </li></ul><ul><li>1 st place in the Rating of the amounts of pension savings per capita </li></ul><ul><li>In 2004 more than 350,000 individuals in Russia transferred pension savings </li></ul><ul><li>to non-state pension funds and asset management companies in the amount </li></ul><ul><li>over RUR 1 bln. (for 2003 - more than 700,000) </li></ul>Ratio of workers to retirees Working individuals 2 nd Pillar pension savings Results of NPF Raiffeisen
  4. 4. Pension Funds - Variety of Principles <ul><li>Foreign experience in non-state pension provision </li></ul><ul><li>- Corporate pension plans (CPP) </li></ul><ul><li>- 401K plans </li></ul><ul><li>Non-state pension funds (further – NPFs) in Russia </li></ul><ul><li>- Captive pension funds – created in the 1990-s by big corporations </li></ul><ul><li>- Open pension funds – working for broader range of companies </li></ul><ul><li>- Products range: individual and corporate pension products </li></ul><ul><li>Different set-up and objectives </li></ul>are usually highly dependent on equity and therefore may be vulnerable <ul><li>Differences in investment principles </li></ul>
  5. 5. Pension Funds - Economic Role <ul><li>NPFs are institutional investors with considerable resources and the source </li></ul><ul><li>of the “longest” money in the economy which triggers </li></ul>… development of securities … fixed income and … IPO markets, … cheaper loans <ul><li>NPFs provide for long-term liquidity and are most stable institutions, as liabilities </li></ul><ul><li>are allocated over significant time frames (very often 25-30 years) </li></ul><ul><li>Providing for social benefits not sponsored by state, relieve tax pressure </li></ul><ul><li>on business, which long-term ideally results in lower tax rates (i.e. UST) </li></ul><ul><li>NPFs are the safest and most transparent form of long-term savings </li></ul>
  6. 6. Pension Funds - Social Role <ul><li>Ensure additional support to employees after retirement (currently 13% of the </li></ul><ul><li>companies provide CPPs to their employees, 23% plan to implement in 2006) </li></ul><ul><li>Provide a feeling of “being taken care of” (on average 6,5% of contributions over </li></ul><ul><li>the course of 15-20 years is a lot of savings!) </li></ul><ul><li>… pension benefits then eventually almost double as 73% of the plans are co-funded </li></ul><ul><li>Excellent retention vehicle (vesting) </li></ul><ul><li>Non-state pension funds are the leading providers of CPPs in Russia (36% market share*) </li></ul>*NPF Raiffeisen refers to “2004 Ernst & Young Compensation & Benefits Survey. Final Report. Russia” for all statistics used on this slide <ul><li>73% of companies opt for “defined contribution” rather than “defined </li></ul><ul><li>benefit” pension plans – internationally the trend has also been towards fully-funded </li></ul><ul><li>pension plans </li></ul>
  7. 7. Raiffeisen expertise
  8. 8. Raiffeisen Group Leadership in CEE/Russia <ul><li>1996 -ZAO RaiffeisenbankAustria (RBRU) started operations in Russia </li></ul><ul><li>RBRU is a 100% subsidiary of RZB AG </li></ul><ul><li>Main shareholders of RBRU are: Raiffeisen Zentralbank Oesterreich AG, the European Bank for Reconstruction and Development, the International Finance Corporation </li></ul><ul><li>1999 - RBRU launched retail services </li></ul><ul><li>At the moment RBRU is represented by 11 offices in Moscow; two branches in St. Petersburg, one branch in Ekaterinburg </li></ul><ul><li>2004 – RBRU established NPF Raiffeisen </li></ul><ul><li>2004 – RBRU established OOO Raiffeisen Capital Asset Management </li></ul><ul><li>NPF Raiffeisen and OOO Raiffeisen Capital Asset Management are 100% subsidiaries of ZAO Raiffeisenbank Austria </li></ul><ul><li>2004 – Moody’s-Interfax gave long-term credit rating Aaa(Rus) to RBRU </li></ul><ul><li>2005 - Global Finance has ranked Raiffeisen group the best in client’s asset management </li></ul><ul><li>1927 – foundation of Raiffeisen Zentralbank Oesterreich AG (RZB) </li></ul><ul><li>RZB AG assets: EUR 62,8 billion </li></ul><ul><li>RZB AG ratings: S&P - A1; Moody’s - A1 </li></ul><ul><li>1985 – year of foundation Raiffeisen Capital Management (RCM) </li></ul><ul><li>The largest asset management company in Austria (21% market share) </li></ul><ul><li>Assets under management: EUR 26.7 bln </li></ul><ul><li>More than 150 funds under management </li></ul><ul><li>Four funds are AAA-rated, five funds are AA/A-rated by S&P </li></ul><ul><li>Running or planned operations in Hungary, Slovak Republic, Croatia, Romania, Russia </li></ul> ZAO Raiffeisenbank Austria performance in Russia Raiffeisen Group presence in Central and Eastern Europe
  9. 9. Pension & Asset Management Products 2 nd pillar Labor pension cumulative part 2 nd pillar Professional pension (in 2005) 3 rd pillar Retail individual plans 3 rd pillar Corporate pension plans Trust asset management 2 nd &3 rd pillar NPF portfolio Unit investment funds (equity, balanced, bonds) Private Wealth Management Trust asset management corporate & institutional The widest long-term investment products range with strong local and international expertise both in investment area and on administration side Investment Management Payment of pension benefits Administration individual & corporate plans Design Advisory Research RCM,Vienna as CoC Local risk mgmt RBRU CoC Advisory / model portfolios
  10. 10. Legal Investment Constraints 3 rd Pillar pension reserves 2 nd Pillar pension savings <ul><li>0-50% </li></ul><ul><li>max 20% placed within one bank </li></ul>Cash and deposits <ul><li>0-50% </li></ul><ul><li>max 20% per issuer </li></ul>Domestic Corporate Promissory Notes <ul><li>0-20% </li></ul><ul><li>max 20% under management of one company </li></ul>UIF Units <ul><li>0-20% </li></ul><ul><li>m ax 20% per issuer </li></ul>Domestic Equities <ul><li>0-50% </li></ul><ul><li>max 20% per issuer </li></ul>Domestic Corporate bonds <ul><li>0-50% </li></ul><ul><li>max 20% of issue outstanding </li></ul>Domestic regional and municipal bonds 0-50% Domestic Sovereign bonds Non-State Pension Fund ( weight in pension reserves portfolio ) Eligible Asset Classes <ul><li>up to 20% </li></ul>Foreign Currency <ul><li>up to 10 % in one bank </li></ul><ul><li>max 20% </li></ul>Cash and deposits <ul><li>0-40% </li></ul><ul><li>max 15% of issue outstanding </li></ul>Mortgage-backed securities <ul><li>max 15% under management of one company </li></ul>Index UIF Units (invested in foreign assets) <ul><li>0-40% </li></ul><ul><li>m ax 1 0% of market cap per issuer </li></ul>Domestic Equities <ul><li>0-50% </li></ul><ul><li>max 10% of issue outsatnding </li></ul>Domestic Corporate bonds <ul><li>0-40% </li></ul><ul><li>max 10% of issue outstanding </li></ul>Domestic regional and municipal bonds <ul><li>0-100% </li></ul><ul><li>max 35% of issue outstanding </li></ul>Domestic Sovereign bonds Non-State Pension Fund ( weight in pension savings portfolio ) Eligible Asset Classes
  11. 11. <ul><li>RC investment philosophy principles: </li></ul><ul><li>Active investment management </li></ul><ul><li>Long-term real return as the major objective </li></ul><ul><li>Effective investment process </li></ul><ul><li>Investment discipline </li></ul><ul><li>Collective decision making </li></ul>Investment Strategy: Philosophy and Performance Assets Allocation Moscow bonds 15.00% Municipal bonds 35.00% Equities 10.00% Corporate bonds 40.00%
  12. 12. Discussions of Corporate Pension Plan Issues
  13. 13. Corporate pension plan issues Should a potential Participant stay with the company for a certain minimum period of time before he/she becomes eligible for participation in a CPP? CPP Eligibility Scope of participation Shall all employees be eligible for participation in a CPP or just certain management levels, etc? CPP special conditions Shall there be any special conditions (e.g. lump-sums, modified vesting rules, spouse option, etc) for those certain groups of employees? CPP conditions <ul><li>Which scheme to choose – “With Individual accounts”, “With Solidarity accounts” or “With Matching principle”? (see back up slide) </li></ul><ul><li>Pension contribution ratio (e.g. 3-3; 5-5; 7-5 employer – employee </li></ul><ul><li>respectively), vesting type - cliff or graded (see back up slide) </li></ul>Goals of a CPP <ul><li>Retain; </li></ul><ul><li>Incentivise; </li></ul><ul><li>Assume certain level of social responsibility; </li></ul><ul><li>Provide additional “deferred” compensation </li></ul>
  14. 14. General Tax Considerations <ul><li>Changes to Chapters 23 and 25 Part Two of the Tax Code effective January 1, 2005 </li></ul><ul><li>Under new tax law, pension contributions to a Solidarity Account are not deductible for profits tax purposes </li></ul><ul><li>Investment return accrued on the Solidarity account is taxed in full (previously only the incremental investment return over CB refinancing rate) </li></ul><ul><li>UST is not due, as contributions are made from net profit </li></ul><ul><li>2 nd pillar contributions transferred from State Pension Fund to Non-State Pension Funds are not subject to tax (there were considerations that 24% profits tax may apply) </li></ul>Changes to Tax Code Solidarity account Pension Savings 2 nd pillar Individual Account <ul><li>Contributions made to Corporate Individual Accounts are, as previously, deductible for profits tax purposes in the amount nor exceeding 12% of payroll costs </li></ul><ul><li>UST is due </li></ul>
  15. 15. Our CVs Dina Zharova-Berbner – Chairman of the Board Joined in 2004; started in financial industry in 1995; 9 years experience in banking, corporate finance and investments with Bank of China, Credit Lyonnais, Deutsche Post Group and Raiffeisenbank; MBA INSEAD (Singapore/Fontainebleau); speaks Russian, English, Chinese, German, French Alexander Lorenz – Member of the Board Joined in 2005; has 8 years experience in financial industry with the European Bank for Reconstruction and Development in London and Moscow; was a members of the Board of ING Bank Eurasia in Moscow and General Director of the ING Non-State Pension Fund, which he helped to establish. A member of the supervisory boards of several pensions funds in Central Europe; a member of the Executive Board of the Association of European Business in the Russian Federation; s peaks English, German, French and Russian. Elena Gorshkova – Vice Executive Director, Head of Corporate Sales Department J oined in 2004; started in financial industry in 1993; joined Raiffeisenbank Austria ZAO in 1998; previously held leading positions in custody and securities operations area with ING Bank (Eurasia) ZAO and Merrill Lynch LLC; graduated from Military University of Ministry of Defense, speaks Russian and English Anton Osin – Senior Corporate Sales Manager Joined in 2004; started in financial industry in 2000; 4 years experience with Arthur Andersen, Ernst & Young in Russia; experienced in the tax and consulting areas; graduated from the Moscow State Lomonosov University and Higher School of Economics; speaks Russian, English and German
  16. 16. Back up slides
  17. 17. <ul><li>NPF Raiffeisen offers the following defined-contribution corporate pension </li></ul><ul><li>schemes: </li></ul><ul><li>“ With Fixed Contributions and Individual Accounts”, </li></ul><ul><li>“ With Fixed Contributions and Solidarity Accounts”, </li></ul><ul><li>“ With Fixed Contributions and Matching Principle” </li></ul><ul><li>The above are base Schemes which can be customized to the corporate client’s needs </li></ul>Corporate Pension Schemes
  18. 18. Forms of Pension Benefit Payment <ul><li>Life-long pension benefit means that you may receive pension benefit for the duration of your life. Pension benefit ceases upon death. No payments will be made to your heirs under this scheme </li></ul><ul><li>Payment of pension benefit within a fixed period means that you can establish a fixed period of time (not shorter than 5 (five) years) during which you will receive pension benefit. If you die before the expiration of such a period, pension savings accrued on your Individual Account will be paid as a lump sum to your Beneficiary or heir in accordance with the Russian legislation </li></ul><ul><li>Life-long pension benefit with a Beneficiary/Beneficiaries means that you have the right for a life-long pension benefit and can appoint a Beneficiary who will inherit the pension savings in case your death within a stipulated period of time </li></ul><ul><li>Payment of pension benefit until full depletion of funds means that pension benefit may be paid to the you as a fixed amount until full depletion of the pension saving accrued on the Individual Account. Such a fixed period shall be at least 5 (five) years. If you die before the expiration of this period, pension savings accrued on your Individual Account shall be paid as a lump sum to your Beneficiary or heir in accordance with the Russian legislation </li></ul>
  19. 19. Sample Participation Case (Cliff Vesting) Participation details : Birth date: 1965 Age: 40 years old Gender: Male Start date in plan: 2005 Retirement date: 2025 Contribution rate: 7%g.s. = USD70 Gross salary: USD12,000 p.a. Type of Vesting: Cliff Vesting period: 5 years <ul><li>Scenario: Exit from the Fund before Pension age/at Pension Age </li></ul><ul><li>Vesting service: 5 years </li></ul><ul><li>Pension Contributions (PC): USD 4,200 </li></ul><ul><li>Accrued Investment Return (IR): USD 708 </li></ul><ul><li>Total (Vested): USD 4,908 </li></ul><ul><li>Scenarios </li></ul><ul><li>Early exit from the Fund 2010 year </li></ul><ul><li>in 5 years: </li></ul><ul><li>Surrender value due USD 4,146* </li></ul><ul><li>b) Pension contributions at retirement </li></ul><ul><li>(continuous contributions 7% g.s.): USD 16,800 by 2025 </li></ul><ul><li>Accrued Investment Return (IR): USD 15,705 by 2025 </li></ul><ul><li>Total Pension Savings: USD 32,505 by 2025 </li></ul><ul><li>Monthly amount of life-long </li></ul><ul><li>Pension**: USD 143 </li></ul><ul><li>*(PC+(IR*80%))*(1-Tax)=(4,200+(708*80%))*(1-0.13)=4,146 </li></ul><ul><li>** Life expectancy male (228 months) </li></ul>
  20. 20. Sample Participation Case (Graded Vesting) Participation details : Birth date: 1965 Age: 40 years old Gender: Male Start date in plan: 2005 Retirement date: 2025 Contribution rate: 7% of g.s. Gross salary: USD12,000 p.a. Type of Vesting: Graded Vesting schedule: 3 years – 60% 4 years – 80% 5 years – 100% Scenario: Exit from the Fund before Pension age/at Pension Age Vesting service: completed 3 years Pension Contributions: USD 2,520 Accrued Investment Return: USD 247 Total (Vested): (USD2,520 + USD247)*60%= =USD1,660 Scenarios Early exit Corporate plan in 3 years: 2008 Surrender value due USD 1,418* *(PC+(IR*80%))*(1-Tax)=(1,512+(148*80%))*(1-0.13)=1,418
  21. 21. Individual income tax consequences Agreement in his/her own favour Pension benefits Surrender value Agreement in favour of a 3 rd Party Contributions made by a 3 rd Party Contributions made by him/herself Pension benefit is tax exempt Pension benefit is subject to individual income tax Only the amount of investment return is subject to individual income tax The whole surrender value is subject to individual income tax Depends on the Agreement : Depends on the Payor:

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