Bank of Russia amends requirements for pension reserves investment
The new rules will become effective from the beginning of 2021. They tighten the restrictions for investment in perpetual bonds since, depending on issue terms, the risk of investing in perpetual bonds may be higher compared to conventional bonds of the same issuer.
Given their economic nature, investment in perpetual bonds shall be included in the calculation of a single limit for investment together with a particular issuer’s shares. In addition, it is required to use the rating of an issue or a surety, and not of an issuer, for this type of bonds.
Furthermore, a 5% limit will be allocated for investing pension reserves in mortgage-backed bonds with high credit ratings. These securities will be excluded from the 10% limit for investment in higher-risk assets, while this limit will be gradually cut to 7% by 1 January 2025. This will be a long-term factor driving the development of the mortgage market.
The enactment of certain requirements for pension funds is postponed for one year, so as to mitigate the consequences of the pandemic and avoid asset fire sales. Specifically, the reduction in caps on investment in the assets of the same legal entity or related parties is suspended until 1 July 2021, and the date when the limit encompasses higher-risk assets purchased before the implementation of the new rules is shifted to 1 January 2024.
The updates are intended to enhance the protection of insured persons’ rights and limit investment risks for funds.