1. Issues With Voluntary Opt-out Auto-enrollment Pension System
Zoran Anušić, Senior Economist
Moscow, Russian Federation
March 30, 2017

2. From 2013 – mandatory pension system in Russian Federation less adequate despite unchanged contribution rate of 22%
Source: OECD Pensions at a Glance 2015; World Bank database

3. Public pension adequacy in EU and Russian federation is expected to decline in the future
Sources: EU Aging Report 2015; NIFI: Financial Journal II/2016

4. International experience with auto-enrollment - 1UK
New Zealand
Italy
USA
Canada/
Quebec
since
2012
2006
2007
2014
Automatic enrollment
Mandatory
But operatde as opt-in
Optional (mandatory for 100- simple plans
Minimum number of employees
2012: 250+
2014: 50+
2016: 30+
2017: 30- No
No, but 100- can opt sor SIMPLE plan 5+
Opting out period (days) 30
14-56
180 90 60
Contribution rate employer 1% 3%
6.91%
No, but 4% if employee defers 5%+ as safe harbor 0%
Automatic escalator employer
: 2%
2019+: 3%
Contribution rate employee
3%; 4% or 8%
No, but 3%+ is safe harbor 2%
Automatic escalator employee
: 3%
2019+: 5%
: 3%
: 3%
2018+: 4%

5. International experience with auto-enrollment - 2UK
New Zealand
Italy
USA
Canada/
Quebec
Default option: manager
NEST
Govt selects every 7 years No
Yes, but still not regulated
Default option: investment
Life cycle
Conservative
Conservative (funds allocated as employers’ liability
Not regulated
Collective plans
Yes
Possibility to chose individual plan
No, but being considered
Withdrawal
55+
65+
retirement
60+
Early withdrawal options
Severe health reasons or disability
First house, severe health or financial reasons (after 3y)
Loans if severe financial or health reasons
Employer contributions only if severe financial resons or disability
Early withdrawal penalty
Income tax if 10%+
Opt out rate
10% large firms, but 30-40% small firms and self-employed
Kiwisaver opt-out rate 33%
Operated as opt-in. Voluntary pensions cover some 30% or workers, o/w 10% new plans.
Coverage 65%
n.a.
Source: Rudolph (2016)

6. Russian automatic enrollment proposal – Questions
What could be the opt out rate ... Given no matching by employer or the state?
What contribution rate would individuals choose... Given it is paid from net wage?
Would participants trust the system?
Would „kanikuli” be common or an exception?
Would the administrator work efficiently, transparently and neutrally?

7. Conclusions and further policy considerations
Auto-enrollment proposal largely follows good international practice (contribution, admin, investment, payout), BUT ...
... may not be sufficient to compensate for falling adequacy and prevent old age poverty.
PAYG reforms - higher retirement age or tighter early retirement - raise adequacy;
Unfreezing mandatory second pillar and partially substituting first may have positive effect again... If fiscal cost can be handled.