Putin Makes Russian Pension Reforms Law | Chief Investment Officer

An extra $7.6 billion from the government will help finance the operation, which gradually raises the national retirement age over the next five years.

President Vladimir Putin made Russia’s unpopular pension reform, which will gradually raise the national retirement ages through 2023, official Wednesday.

The bill was approved by the Federation Council, Russia’s upper house, several hours before Putin’s decision.

Under the new provision, which seeks to stabilize the nation’s economy, men will now wait until age 65 to collect their benefits. Women can do so at age 60. The previous retirement ages were 60 for men and 55 for women.

The ages will increase gradually until 2023 to the new levels.

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Putin told cabinet members Tuesday that no additional budget revenue was expected from the move. Finance Minister Anton Siluanov said the government will transfer ₽500 billion ($7.6 billion) to the state pension fund to finance the operation.

“It is true, we do not expect any additional revenue from the pension law changes and, on the contrary, we will even increase financial transfers to the Pension Fund,” he told the Moscow Times.

The reforms have been an issue in Russia since June, when an earlier version passed in the lower house, known as the State Duma. Constant protests and diminishing approval ratings meant Putin, who had previously said the pension laws would not be touched under his rule, had to intervene. He did so in a televised broadcast in August, but rather than revoke the bill before its second of three Duma readings, the president softened it up.

Putin rolled back the initially proposed pension hike for women (age 63), and also added several security measures for those within five years of retirement, which included a higher unemployment collection and a clause that would penalize companies for discriminating against them. The pre-retirement incentives were also approved.

These changes, however, did not appease citizens, especially the age boost. Given the average life expectancy in Russia is 66 for men and 77 for women, most residents are now considering their retirements a pipe dream. The younger generation is also worried that they will find employment difficult as the old must work longer at their jobs that are now better protected.

A mid-September poll by the independent Levada Center showed 11% of Russia’s population supported the policy. The number of willing protesters, however, decreased by 53%, to 35%—a telltale sign that many a Russian had given up on a clawback.

Tags: Pension, Russia, Russian Pension Reform, Vladimir Putin

International Paper has purchased a $1.6 billion group annuity contract from the Prudential Insurance Company of America, which will shift the benefit obligations of 23,000 retirees to the insurer.

The deal is not only the second pension risk transfer between the two in nearly a year, but the second-largest agreement in 2018, behind FedEx’s mammoth $6 billion pact with MetLife in May.

International Paper’s previous $1.3 billion buyout with Prudential was last October, where the insurer took on the benefits of 45,000 International Paper beneficiaries. It was the first pension risk transfer between the two organizations.

Group annuity buyouts have become increasingly more popular across the corporate pension landscape as chief investment officers seek ways to de-risk their plans and boost funding ratios. A risk transfer helps shield the fund from volatility and lengthier payments as life expectancy grows.

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The paper company has been de-risking since 2014, when it announced plans to freeze its benefit accruals at the end of this year. In 2016, it offered a lump-sum payment to 47,000 former employees that had not yet retired, which chalked up to roughly $3 billion in liabilities. Only $1.2 billion, or less than half of that total, was taken by about 25,000 ex-workers.

In addition to the Prudential deal, International Paper also issued a $1 billion debt offering last fall, which helped pay for a $1.25 billion pension contribution. This also cut the expectations to make any required contributions through 2022.

Scott Kaplan, Prudential’s head of pension risk transfers, told CIO that the business was “thrilled to have a client who places their confidence and trust in our abilities to execute a second time.” He said the deal came about at some point within the first six months of this year, and that the paper firm may have gone again with Prudential “given the success of the first transaction.”

“Like many plan sponsors, [International Paper] continued to stay on a path of de-risking and not effectively placing bets on interest rates or what I’ll call ‘taking risk in non-core parts of the operation,’” Kaplan said.

He expects there to be more pension risk transfers in 2019, as CIOs are preparing for a possible downturn in the near future. Prudential has worked on at least 13 of these deals this year, about the same as in 2017. He said the business is expecting to complete another “five or six” by the end of the year.

Robert Hunkeler, International Paper’s chief investment officer, agrees with Kaplan as far as pension risk transfer activity among his fellow corporate pensions goes. “You certainly would think so, as the increasing costs of keeping these plans in place, particularly with the high PBGC premiums companies now have to pay, and the fact that plans are getting better funded than they were before makes the environment pretty good for these types of deals,” he told CIO.

There have been no discussions about International Paper conducting any pension risk transfers in 2019, but another one would not surprise Hunkeler.

“If you’d asked me last year, I probably would’ve said ‘I thought we were done last year,’ [but] we decided to do another one this year,” he said. “The economics spoke to us, so we proceeded. I think it’s really going to be a question of what the situation on the ground looks like [regarding] whether we do another one in the future or not, but right now, it’s impossible to say.”

International Paper has $33.9 billion in total assets, according to its latest annual report. Its pension plan is 88.2% funded.

“If you add the two transactions now that we did with Prudential, plus we did a lump-sum term-vested payoff program a few years ago, if you take those in combination, we’ve done more than $4 billion worth of risk transfer activity in the last three years,” Hunkeler said. “We’ve been pretty active, and we’re pretty pleased with it.”

Tags: International Paper, Pension, Pension Risk Transfer, Prudential, Robert Hunkeler