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In the sweltering summer of '23, the big man, Putin, signed a law establishing a mechanism for citizens to secure long-term savings, all set to roll out by January 1, 2024. Led by the Bank of Russia, this new program aims to give citizens an easy-peasy, convenient way to earn extra bucks for the future or establish an emergency fund for those unexpected jolts life can throw.
So here's the jist, folks. A citizen strikes a deal with a non-state pension fund and makes regular payments (above and beyond the mandatory FOT deductions). In return, the fund promises to cough up the dough either once the contract term is finished or when unavoidable circumstances like hefty medical expenses or losing the family breadwinner rears its ugly head.
The initial investment for the Long-Term Savings Program (LSP) contract can be made using funds from the accumulative part of the pension, plucked from the mandatory pension insurance system (MPI).
Starting at 60 for the gents and 55 for the ladies, or after 15 years from the contract-signing, participants become eligible for recurring payments. These payments can last a lifetime or for a minimum of ten years. The payout can be lump-sum or periodic, depending on the citizen's contributions and the non-state pension fund's performance.
On top of all that, participants will receive an additional bonus payment from the Fund for Pension and Social Insurance of Russia. The maximum annual extra goodies are 36,000 rubles for the first three years, extendable by the government.
This government assistance applies to those who sign a contract between '24 and '26 and pump in at least 2,000 rubles annually. The extent of state help depends on the citizen's income level - the higher the income, the lower the assistance. For instance, if the LSP participant's monthly income maxes out at 80,000 rubles, the co-financing formula is "1 ruble participant = 1 ruble state." Hence, to score the maximum state support, average earners need to stash 36,000 rubles per year, and the state will triple this chunk.
For those whose income ranges from 80,000 to 150,000 rubles, the formula gets slightly trickier - "1 ruble participant = 0.50 rubles state." The highest state support here is 36,000 rubles, attainable by stashing 72,000 rubles annually. Lastly, for those blessed with earnings exceeding 150,000 rubles, the formula becomes "1 ruble participant = 0.25 rubles state." To secure the 36,000-ruble state bump, you’ll need to save a hefty 144,000 rubles yearly.
But worry not, LSP participants can take advantage of a tax deduction of up to 52,000 rubles yearly (13% of the amount stashed within the program).
The law also brings changes to several Russian Federal Laws. These alterations, among other things, secure long-term savings within the system guaranteeing the rights of participants in non-state pension funds, meaning fund insurance is up to 2.8 million rubles. That's right, if anything goes south with the non-state pension fund, the state has got your back.
VEB.RF will take charge of managing the trusteeship of pension savings. The pension programs' participant rights guarantee system within non-state pension funds is expanded to long-term savings agreements.
The ASS guarantees for physical persons are hiked from 1.4 to 2.8 million rubles in case of bankruptcy or a non-state pension fund's license revocation. And for citizens who have transferred their pension savings as LSP contributions, or those who’ve received state extra financial encouragement, the ASS guarantees will be given an additional boost equal to the corresponding funds.
As stated by the law's authors in the accompanying explanatory note, the LSP is a user-friendly financial resource for citizens designed to provide folks with a stable financial future. Anyone aged 18 or older can hop on board and join this program. Before you dive in, though, it's crucial to consult official Russian government or financial regulatory sources for specific details about Russia's LSP, including eligibility criteria, contract terms, payment structures, state support, tax deductions, and legislative changes.
- This new program, managed by the Bank of Russia, is aimed at helping citizens enhance their personal-finance situation by offering a Long-Term Savings Program (LSP) that allows them to secure long-term savings and earn extra money for the future.
- The LSP can be funded using funds from the accumulative part of the pension, obtained from the mandatory pension insurance system (MPI), and is expected to provide financial stability, especially during unexpected emergencies or for retirement, thereby contributing to citizens' business and overall financial well-being.
