Challenges of the Mandatory Funded Pension System in the Russian Federation
The overwhelming number of contributors that have been allocated into the default option is one of the main characteristics of the Russian second pillar. This finding confirms that the level of financial literacy for most of the participants is not...
| Main Authors: | , |
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| Format: | Policy Research Working Paper |
| Language: | English |
| Published: |
2012
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| Subjects: | |
| Online Access: | http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20101230163755 http://hdl.handle.net/10986/3998 |
| Summary: | The overwhelming number of contributors
that have been allocated into the default option is one of
the main characteristics of the Russian second pillar. This
finding confirms that the level of financial literacy for
most of the participants is not sufficient to make informed
portfolio selections. The authors argue that the current
system is perfectly consistent with a solid second pillar,
but the authorities should focus their attention in the
strategic asset allocation of pension funds. Since in the
short and medium term it is unlikely to see improvements in
financial literacy of individuals that may overcome the
complexity of these decisions, the authorities can play an
important role in designing default investment portfolios
that can be aligned with expected replacement rates for the
contributors. The current investment regulation of the
default option induces investment in inefficient portfolios
that are unlikely to bring returns above inflation, and
probably will result in very low replacement rates for
contributors. Further liberalization of the investments of
the pension portfolio; improvements in the governance and
supervision of the pension system; and greater certainty
about the ownership of the funds are necessary steps to
complete the pension reform launched in 2002. |
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