/ world today news/ The government supported the launch of a long-term savings program in Russia. Its purpose is to give citizens a tool to learn how to save money for a long time. The main goals for saving are higher education for children, expensive treatment or “for old age”. What is this new mechanism, how does it work and what benefits does this new program promise?
“The government has developed legislative amendments that are necessary to launch a new long-term savings program for citizens,” Russian Prime Minister Mikhail Mishustin said at a cabinet meeting on Thursday. According to him, this program “will give people the opportunity to earn additional income in the future and create a so-called financial cushion for themselves.”
He assigned Finance Minister Anton Siluanov to take personal control over the adoption of the relevant bill in the parliament. “The most important thing is that the new financial instrument allows citizens to accumulate additional funds for retirement, as well as for special life situations,” stressed the Prime Minister.
What is this new investment tool for citizens?
The Ministry of Finance and the Central Bank of the Russian Federation have developed a new product specifically for ordinary citizens, so that without special experience, with the help of specialists, they can independently accumulate funds “for old age”, for children’s education or for expensive treatment, if necessary.
This system is somewhat reminiscent of the fairly well-known US savings account system, which is used by tens of millions of Americans. For ordinary citizens there, however, investing in stocks and bonds is a long-standing and common practice. In Russia, this story is almost new. And it is not so easy to form the desire of Russians to learn this kind of “art” – to create “pillows” for themselves through investments in securities with the help of specially trained people.
To attract Russians to this program, the state considered a number of bonuses. Therefore, the Russian long-term savings program has a number of clear advantages over foreign counterparts.
So, for three years the state acts as a co-investor along with the citizen and adds state money to his funds. This incentive is valid for those who join the program during the first three years of its operation. The maximum that the state can “report” is 36 thousand rubles per year, that is, in the amount of three years, it will be a maximum of 108 thousand rubles. The amount depends on how much the citizen himself will contribute to savings.
Another nice bonus is the possibility of tax relief of 13%. You can receive a maximum of 52 thousand rubles per year in the form of a deduction from 400 thousand rubles contributed by a citizen to the savings program (that is, if he saves 33 thousand rubles per month).
An important point is that the safety of funds is guaranteed by the state: all funds will be insured for 2.8 million rubles. For comparison: in the case of bank deposits, the insured amount is half as much. Not to mention that the non-state pension funds (NPF), to which the funds will be entrusted, are under the strict control of the Central Bank.
Many NPFs have been on the market for almost 30 years. There are now 38 funds serving more than 42 million people. Of these, about 1.6 million already receive periodic payments from the NPF.
It should be understood that this savings program does not change the pension system. It only affects her in two places. In both cases, the account is opened in non-state pension funds. Second, previously formed savings (before 2014) in the NPF can be directly transferred to the new savings system.
NPFs will invest savings to increase citizens’ incomes. Compared to bank deposits, which usually do not cover inflation. While NPF yield can outpace inflation, as it did for example in 2019 and 2020. But it doesn’t always work out that way. Like in 2022 when the average NPF return in 2022 was just over 5% and inflation was higher. But for long-term investments, it is not the annual income that is important, but the income for all the years of investment. The program is for savings over a period of 15 years.
Russian Finance Minister Anton Siluanov says that the yield on citizens’ long-term savings program instruments will be higher in the medium term than on bank deposits. According to him, the new instrument will allow citizens who do not have special knowledge in the field of investments to form long-term savings with subsequent investment in financial instruments.
Two more important advantages of the new program are that if the time has come to pay for higher education for a child or funds are urgently needed for treatment, then the money can be withdrawn early without loss of income, unlike deposits where the income is or otherwise lost. But we must understand that it is impossible to withdraw the savings early just because you wanted to. Only in special life circumstances – for training or treatment.
Finally, all savings are fully inherited. Only the part already paid is deducted. The only exception is when a person is assigned lifetime periodic payments, but this is a special case.
The optimal age for entering the program is considered to be 25-30 years, but at this age people consume more than they accumulate, so the more promising category are people aged 40-45, believes Olga Shishlyannikova, director of the investment financial department intermediaries of the Bank of Russia.
How to enter this program? To do this, it is necessary to conclude a long-term savings agreement with the NPF. You can sign a contract with several operators at the same time. This can be done in your personal profile, if you have one, through the public service portal or at a fund or bank office.
In addition, the citizen contributes funds for savings: exactly how much and when, he decides for himself, there are no requirements here. Citizens can optionally transfer pension savings to the program. They are carried over to the following year after the application is submitted. You can change NPF every five years without any loss.
NPF will invest your funds to increase income in Federal Reserve Bonds, Infrastructure Bonds, Corporate Bonds and other securities. It is worth noting that OFZ investments today are one of the most reliable financial instruments, since they are issued by the Ministry of Finance, and not by companies. That is, the state itself is responsible for them.
The first monthly contract payments start after 15 years of the contract, and it doesn’t matter how old you are at that point. If you take out a contract at 20 years, then payments will start as early as 35 years. On the other hand, payments also start at age 55 for women and age 60 for men, even if they have not yet completed 15 years under the contract.
Such savings contracts can be concluded as much as one wants. In addition, a child contract can be signed. If it is issued for a two-year-old, then savings can be built up for his higher education, unless, of course, the installments are forgotten.
The program will begin work from the beginning of 2024. The first year, according to experts, the Russians will hesitate, but the mass distribution of the program is expected as early as 2025 and 2026. And if hundreds of thousands of people are involved in it, this can already be considers it a success, believes Sishlyannikova. Sberbank Senior Vice President Ruslan Westerovsky predicted that up to 15 million people could become participants in the program by 2030, and assets under management could reach 4 trillion rubles.
Translation: V. Sergeev
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