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MOSCOW (Reuters) — Russia's government approved a pension system overhaul on Thursday that will give it tighter control over savings accumulated by private funds while reducing the burden of an ageing population on the state's budget.
Changes to the law will prevent private funds from collecting payroll contributions until they have changed their legal status and been vetted by the central bank, a process that is expected to take at least a year.
The move has raised concerns among market participants about nationalization of pension savings — often a tempting measure for cash-strapped governments looking to plug holes in over-stretched state pension systems.
The share of Russia's working age population is expected to decline by the end of Putin's third term in 2018 to 56.8 per cent from 60.1 per cent in 2013, Russian Federal Statistics forecasts show, adding to the burden of paying pensioners.
"We view this initiative as extremely negative, as it de facto suggests the government does not treat defined contributions as private savings," Alfa Bank economist Natalia Orlova commented.
"It is a very bad sign not just for pension reform, but also for the investment climate."
Russia's President Vladimir Putin has vigorously defended the measure, saying it is a temporary step while the government tightens regulation of a sector where public confidence is low, aiding its long-term development.
"The government isn't talking about confiscation of pensions savings," Putin told a VTB Capital investment conference on Wednesday.
"God forbid. The money won't disappear. As soon as the system of guarantees is created ... pension funds will start work again."