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The economic policy makers of Russia considers abolishing mandatory pension funds that had been an objective to sustain the long-term health of the system, according to sources.   

In addition, the finance ministry and the central bank have been battling for years on the mandatory payments as they have concerns over the future fiscal burden of pensions. However, they have now agreed the point and are constructing ideas on how to raise voluntary retirement savings.    

Declining revenues following sanctions, including a shed in oil prices have left minimal cash to sustain recoveries on an ever-growing hole in the State Pension Fund. Meanwhile, the Fund is run by the health ministry indirectly, and it mainly covers the current needs. It has witnessed its contributions to slump shortly. 

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According to a source, "The decision is still pending, but the finance ministry and the central bank are discussing the voluntary option,"

The discussions were confirmed by sources in the finance ministry and a person close to the government.

While the proposed system is able to steady pressure on the state budget, it is expected to cut funding for long-term investment in capital markets if officials will flop with the assurance that Russians are saving for retirement alone.

With the current system, the funds are divided by the state in two. The funds paid by the employers for every employee with the larger portion directly go to the current state pension payments, while the other smaller portion is going straight to the individual pension saving account of an employee.

Conversely, the second portion, which is known as the mandatory accumulative pension, is commonly invested in financial instruments either by a state or a privately-managed funds.  

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According to a source, "The decision is still pending, but the finance ministry and the central bank are discussing the voluntary option,"

The discussions were confirmed by sources in the finance ministry and a person close to the government.

While the proposed system is able to steady pressure on the state budget, it is expected to cut funding for long-term investment in capital markets if officials will flop with the assurance that Russians are saving for retirement alone.

With the current system, the funds are divided by the state in two. The funds paid by the employers for every employee with the larger portion directly go to the current state pension payments, while the other smaller portion is going straight to the individual pension saving account of an employee.

Conversely, the second portion, which is known as the mandatory accumulative pension, is commonly invested in financial instruments either by a state or a privately-managed funds.  

Analysts are not able to explain further how the voluntary part would take effect as there are still discussions going on. Thus, if no voluntary part in the new system is not proposed, then it is expected that all future employer contributions to the state are obliged to pay for the current pension obligations.

Ahead of the broadening federal budget deficit, the finance ministry has decided to suspend transfers of money for over three years that are intended for the accumulative part of the system, it was used to cover the current pension obligations as a substitute.  

Changing to a new system would result to a solid practice.

The state had sworn that the suspended funds will be returned, but there is still no date given. Meanwhile, this change is possible for the ministry from returning funds.   

What it really was instead?

Called about the discussions, the central bank would be saying that there were no talks going on about abolishing the accumulative part over the pensions system. Subsequently, it declined to comment whether the pension savings will work either mandatory or voluntary. 

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A spokeswoman at central bank mentioned that discussions are ongoing and it deliberates about maintaining the accumulative part and options that will "ensure guaranteed pension reimbursement for those participating,"

"Special attention is being given to finding tools which will allow workers to choose a more active position in forming their own pension savings," she added.

However, there were no details from the central bank regarding ways to maintain the savings which safeguards long-term money inflow into capital markets, as well as soften the pressure of government on how to pay pensions to Russia’s growing population.   

An official said that the new plan would "help alleviate all the negative aspects of the abolition of the mandatory savings."

If the new system will be approved, it would be a victory for the government’s wing, headed by Deputy Prime Minister Olga Golodets, which has been scrapped long for mandatory contributions to be used to pay current pension needs instead.  

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