Yuriy Boyko: It is important to introduce a system of risks for pension provision

Yesterday, September 28, 2021, Yuriy Boyko, Commissioner, took part in an expert discussion on “Accumulative pension – Ukrainian dream or reality?”.

Discussing with the participants of the event the issue of creating a guarantee fund for contributions to NPFs (private pension funds), Mr. Boyko said: If you look at the European and international experience, different models work in all markets. However, when we talk about guarantees, in my opinion, it is more appropriate to consider the system of risks. It is larger. It is a set of measures, starting with the system of functioning of the infrastructure, which should provide guarantees, and the very form of guarantees, which are closely interconnected”.

In case of guarantees, there are three forms of protection against investment risk:

• the guarantee mechanism can be abandoned by using financial market instruments for hedging, for example, by choosing derivative options;
• you can use return guarantees provided by third parties, such as pension fund service providers, their associations or use other forms of collective risk transfer;
•  it is possible to create reserve funds both in the NPF and at the level of asset management companies.

In world practice, there are a variety of forms of guarantees:

• capital return guarantee (zero income guarantee);
•  guarantee of fixed profitability;
•  inflation-oriented or index-oriented guarantee, which provides profitability at the level of the consumer price index or the selected benchmark;
•  current (annual) nominal guarantee;
•  floating guarantee.

It is important to understand that guarantees are not free and each of these types of guarantees has its price. For them, in the end, either taxpayers (in the case of state guarantees) or system participants (in the form of unearned return on their own investments) are paid. And the greater the amount covered by the guarantee (contributions, income, income at the benchmark level, etc.), the more expensive it is.

Yuriy Boyko added: “As for the structure of assets, today a clear structure is provided for the third pillar and in the near future for the second pillar of pension provision, where exactly pension funds can be invested. These are banking instruments, securities and others. Currently, the problem is with financial instruments, because the only suitable tool in the current situation for investing pension funds is IGLBs. The NSSMC is working to resolve this issue. We want capital markets to have a wide range of effective financial instruments that will be used to build a quality portfolio of pension investments”.

Organizer is Network for the Protection of National Interests “ANTS”.

Participants in the discussion: Maryna Lazebna, Minister of Social Policy of Ukraine, Vitaliy Melnychuk, Vice President of KINTO Investment Company, Danylo Monin, Economic Expert of the Office of Simple Decisions and Results of the Office of the National Reform Council, Olena Sotskova, Chairman of the Ukrainian Association of Pension Fund Administrators.

Moderator is Natalia Veselova, member of the Network for the Protection of National Interests “ANTS”, MP of the 8th convocation.