The Russian Pension System: What s Next? Bonds & Loans Conference Moscow, March 2017

Transcription

1 The Russian Pension System: What s Next? Bonds & Loans Conference Moscow, March 2017

2 Assets under Management Pension Funds AUM Pension Fund' Assets (% of GDP) 6,0 5,0 4,0 RUB tn 1,1 120% 100% 80% 3,0 2,1 60% 2,0 40% 1,0 1,9 20% 0, % US UK Brazil Italy Germany Russia Turkey China Source: CBR, VEB VEB NPF savings NPF reserves Source: OECD Over the past several years the total amount of AUM more than doubled and reached 5tnRUR(~6% GDP) Since 2014 VEB is number 2 after NPFs in terms of AUM absolute value; since 2016 mandatory savings assets, managed by NPFs, outpaced those of VEB Rapid growth (40% CAGR between ) of non government owned part of the pension system took place due to payroll tax split as well as fund outflow from VEB to NPFs portfolios In terms of AUM/GDP ratio Russian pension system is far beyond those of the US and UK but comparable with certain European economies 1

3 Systematic Deficit of the Pension System Population Dynamics Federal Budget Deficit vs. Pension System Gap (% of GDP) 75 mln 0,8 6% 4% 70 0,7 2% 0% 65 0,6 2% Employed F 2019F 2021F 2023F 2025F 2027F 2029F Pensioners per 1 employed (rhs) 2031F 0,5 4% 6% Neutral budget Deficit budget Subsidy from the federal budget to the PFR Federal budget (deficit) / surplus Source: Rosstat, Sberbank CIB Source: PFR, the Ministry of Finance, Sberbank CIB Pension System Gap RUB bln RUB bln Pension taxes Payments to pensioners Gap (rhs) Source: PFR Pension system financing gap has been steadily growing since 2011 up to2,3 tn RUR in2016 (~3% of GDP) The shortage has been historically financed via federal budget subsidies, but growing budget deficit in amidst falling oil prices forced government to seek for alternative sources (e.g. freezing of mandatory savings part) Historically over the past 5 7 years pension revenues (16% part of the payroll tax) totaled 5% of GDP annually, whereas spending needs were about 8 9% of GDP and never less Thus, pension gap has formed at a level of 3 4% of GDP. Level of 3 5% in real terms is roughly comparable with return on investment of pension system AUM. This effectively means, that to cover the gap without extra measures our economy needs to grow pension assets to 100% of GDP vs. current 6% 2

4 Russian Pension System Structure Based on cash flows for 2015 Federal Budget Employers 22% (including 6% of frozen savings part) 6% payroll (frozen starting 2014) Pay as you go system Mandatory savings system Discretionary savings system (reserves) RUB2.3 tn RUB3.9 tn Pension Fund of Russia RUB0.1 tn RUB0.2 tn * RUB0.1 tn * RUB6.2 tn VEB AUM RUB2.0 tn RUB0.4 tn ** Non state Pension Funds AUM RUB2.7 tn RUB0.02 tn RUB0.1 tn Pensioners Source: PFR, CBR, Sberbank CIB * Pension savings for 2H 2013 (i.e. 6% of payroll) transferred in 2015 ** Transfer of pensions savings of those, who decided to move from the Pension fund of Russia to non state pension funds 3

5 Regulation Restriction Investment restrictions Ratings Class limits Issue limits Exposure limits VEB AM company only BB+/Ba1 or higher from IRA a. Sovereign FX denominated bonds: 80% AUM b. Sovereign RUB denominated bonds: unlimited c. Municipal bonds: 10% AUM d. Bonds: 40% AUM e. Mortgage bonds: 20% AUM f. IFIs: 20% of AUM a. Sovereign Bonds: % of any single issue b. Mortgage bonds: 70% of any single issue c. Bonds: 60% of any single issue and 40% of all bonds outstanding for this issuer a. 10% AUM in bonds of any single issuer b. 20% AUM in affiliated banks' deposits Savings a. Issue/Issuer ratings: RF 5 notches from IRA OR A(I) from Expert OR BB+(RU) from ACRA b. Guarantor ratings: RF 3 notches from IRA OR A++ from Expert OR BBB+(RU) from ACRA a. Municipal bonds: 40% AUM b. Equity: 40% AUM c. Bonds rated below threshold; mortgage bonds; floaters (excl. CPI and interest ratelinked); equity, not included into both Tier I and MICEX Index: 10% AUM d. Banking bonds (>3 months maturity), equity and deposits: 40% AUM e. IFIs and ITFs: 20% of AUM a. Bonds: 40% of any single issuer outstanding bonds b. Equity: 10% of issuer s MCap a. 25% AUM in the securities and deposits of any one issuer or a group of affiliated companies b. 15% AUM in bonds (> 3months maturity), deposits and stocks of any single issuer c. FX assets: 30% AUM d. 10% AUM in the securities of any single issuer or a group of affiliated companies Non state Pension Funds Reserves Directly by Fund (predefined list of assets) or AM a. No rating restrictions on Resident issuers b. Min two investment grade ratings from IRA for Non resident issuers a. Municipal bonds: 80% AUM b. Equity: 70% AUM c. Bonds: 80% AUM d. Mortgage bonds: 10 20% AUM e. IFIs and Non resident issuers: 30% of AUM f. Bank deposits: 80% of AUM g. Real estate: 10% of AUM a. State OR Municipal bonds: 35% AUM in any single issue a. 15% AUM in the securities of any one single issuer b. 40% AUM in the Non TIER I securities c. 5% AUM in any single issuer being Fund s depositor d. 25% AUM in any single bank deposits 4

6 Asset Structure Pension Funds Asset Structure Investments in Government and Corporate Bonds (% of AUM) 12% 13% 11% 8% 20% 24% Cash and deposits Government bonds Corporate bonds Equities 45% 40% 35% 30% 25% 31% 40% 23% 17% Other 2013 Q % 15% 10% Q4'13 Q4'14 Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 Q3'16 Government bonds Corporate bonds Source: CBR Source: CBR Industry Breakdown of Corporate Securities * Banks and Fis 12% Transport 6% Utilities 8% 55% Oil & Gas 9% Real estate & development 10% Other Over the past 3 years the share of state owneddebtinpension system assets fell to 17% vs. 23%, whereas corporate debt gained 40% vs. 31% This trend was due to (1) captive character of some NPFs and (2) yield seeking exercise in inflationary environment Over 50% of NPFs AUM is represented by investments in financial sector Financial sector focus is a core characteristic of the Russian pension system as many NPFs are affiliated with large banking groups Source: CBR * Based on NPF savings and reserves as of the end of

7 Key Takeaways Mandatory savings idea seems to be unsustainable from the macroeconomic point of view due to structural pension system financing problems. As such, reversal of payroll tax split into 16% pay as you go and 6% savings part is not likely In the absence of mandatory savings flow the overall growth of total AUM (currently ~5 trln RUR or 6% of GDP) is going to slow down and, given no financial distress in the NPFs universe, is expected to grow mainly due to investment income, i.e. 3 5% p.a. in real terms There is a room for further decline in share of state debt in AUM split by asset type, as a result of strong corporate debt preference stemming from affiliated nature of some NPFs and yield targeting High concentration of NPFs AUM in FI sector (50%+) is not likely to change in the medium term as it requires the rebalancing of the whole system Assuming nominal growth of AUM by 10 12% p.a. (return on investment) and current corporate segment share of 40%, total annual inflowofpensionmoniesintothecorporatedebtsegmentmightbeestimatedat bln RUR or about 15 20% of annual primary issuance. The above rough estimate does not take into account, however, potential decrease in nominal yields as a result of CBR rate cut, for example, or investment portfolio losses, or any structural changes in AUM asset split 6