Russia’s non-state pension fund (NSPF) system appears more secure after the government ended months of speculation over its fate.

Today, Russian prime minister Dmitry Medvedev announced at a government meeting that the country would continue with the accumulative mandatory second pillar.

Medvedev has instructed Igor Shuvalov, first deputy prime minister, to produce proposals to balance the budget and produce more effective measure for the long-term use of pension fund assets.

The decision follows on from yesterday’s announcement by the Kremlin’s press service that, following a meeting with government members at the start of the month, president Vladimir Putin instructed the government and Bank of Russia, the central bank and pensions regulator, to devise mechanisms for channelling NSPF assets into long-term investment projects, and to assess financing volumes.

The Russian press additionally reported that there would be no further moratoriums on pension contributions in 2016.

Medvedev explained that he based his decision on expert advice and public opinion.

In a recent poll conducted by Public Opinion Foundation, 62% of those surveyed opposed the abolition of a funded pension system.

The main reasons for their view were poorer retirement prospects and losing the opportunity to save for their retirement.

Medvedev’s announcement is a victory for the finance and economy ministries and Bank of Russia over the government’s “social” bloc, spearheaded by Olga Golodets, deputy prime minister for social affairs, and Maxim Topilin, minister of labour and social protection.

The social bloc’s arguments for either making the second-pillar voluntary or even abolishing it included what they considered to be poor returns generated by the scheme.

In 2014, according to Bank of Russia, NSPF nominal returns averaged 4.9% compared with an inflation rate of 11.4%, although individual fund returns ranged between 0.2% and 52%.

However, the fund run by the state-owned Vnesheconombank (VEB) for those citizens who did not choose a private NSPF returned only 2.68%.

Last year proved disastrous for conservatively orientated funds investing in government securities, notably VEB, as sharp interest rate hikes by the central bank pushed up bond yields.

Meanwhile, the 24 NSPFs that had, as of 1 March, converted from non-profit to joint-stock company status, gained central bank accreditation and signed up to the guarantee scheme administered by Deposit Insurance Agency (DIA) will receive the contributions frozen in the second half of 2013 and held at VEB by the end this May.

Funds that register later will get their contributions from the third quarter of this year.

In April, the central bank approved two more funds to join the DIA.

The collective RUB947bn (€17bn) in pension savings accounts for some 85% of the total.

Mandatory second-pillar funds that fail to complete this process by the start of 2016 will be liquidated.

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