Inefficiency of pension investment regulation: case of Russia

  • Released On
    Wednesday, 18 October 2017
  • Author(s)
  • DOI
    http://dx.doi.org/10.21511/imfi.14(3).2017.14
  • Article Info
    Volume 14 2017, Issue #3, pp. 148-159
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Inflation risks are one of the major factors faced by funded pension systems. Investment risks affect such key parameters of pension systems as the amount of pension contributions and payments. In order to limit the exposure of pension systems to such risks, governments have introduced instrumental and geographical restrictions on pension investments. These measures are particularly popular in developing countries.
This article discusses the efficiency of pension investment regulation in Russia and demonstrates the inadequacy of the current regulatory measures. Authors show that the negative investment results of pension market players were caused by inefficient government regulation. Authors also show that pension market players should be given more freedom in their investments and that instrumental and geographical restrictions should be removed. Was proposed to diversify investment portfolios into stocks traded on the leading stock markets, which would allow to increase investment returns and maintain the risk at the current level. Thus, it would be reasonable to invest 76% of funds into foreign assets, which will increase pension benefits and the replacement rate by 2.54 times. If we keep the geographical barriers but lift the restrictions on equity investments, the growth will be 1.34 times.

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    • Figure 1. Return and volatility of the main world indices in the period between 2004 and 2011
    • Figure 2. The structure of the index portfolio modelled according to Markowitz’s theory and based on the data on the return of indices, net of exchange and inflation risks, with a risk (volatility) of 3.8%
    • Figure 3. The structure of the index portfolio modelled according to Markowitz’s theory and based on the data on the return of indices, adjusted to exchange and inflation risks, with a risk of (volatility) 3.8%