Any citizen of the Nizhni Novgorod region who has reached the legal age of majority can become the holder of a personal pension account of the Insurance Pension Fund. Together with the state pension this is a new source of pension and a mechanism for storing funds. Enterprises, organizations, banks, and labour groups are allowed to set up funds of this kind with personal accounts of citizens.

The mixed partnership called the Association for Social Protection of Employees -- the Russian Insurance Pension Fund (RIPF) -- is the first specialized organization for voluntary insurance of supplementary pensions in Russia.

The present legislation allows establishment of pension funds of different organizational and juridical forms. However, only a mixed partnership provides depositors with firm guarantees based on the full personal and property liability of founders who are full members.

The Nizhni Novgorod branch of the Russian Insurance Pension Fund is a regional structure.

SCHEME FOR ACCUMULATION AND USE OF DEPOSITORS' FUNDS.

The depositor (the insured):

- concludes a long-term insurance contract with the Fund (insurer);

- deposits his or her money and other valuables in the Fund, which deposit is confirmed by the issuing of an insurance policy and the opening of a personal account.

The Fund accumulates the depositor's funds and transfers them via contract to asset-holding organizations - banks, credit and financial institutions, investment funds, etc. These organizations are also property-liable to the Fund. Investment returns deduction costs are deposited in the personal accounts of depositors.

This arrangement is the basis of the regional branch activity. Vertical relationships with the Fund are based on contracts. The distribution of "region-centre" assets is carried out through specific investment projects. The Fund can attract to the region the assets of branches of other regions, and coordinate investments in inter- regional projects.

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BENEFITS FOR DEPOSITORS.

The insured's deposit is his or her property and is protected by the state. At any time the insured individual can calculate the accrued interest on his or her personal account and withdraw some or all of the funds from the account.

Vouchers can be used as deposits in the insurance fund.

Accruing of deposits depends on the efficiency of assets returns.

In the case of high profitability this predetermines multiple accruing of funds. Both the Fund and an asset holding company are financed from assets returns.

The Insurance Pension Fund is liable to the population for:

- accumulation of insurance payments on personal pension accounts made from both revenues of enterprises and incomes of individuals;

- increase of deposits on personal pension accounts by means of investing the pension fund assets under the control of the state;

- payment of supplementary pension whose amount depends on the sum of deposited fees and the duration of their being held on the personal pension account;

- guarantees for inheritance of the total sum of the deposit and accrued interest.

The insurance pension fund guarantees not the interest but the revenue resulting from the deduction of the sum spent on the maintenance and development of the fund. This means that the depositor is entitled to the sum in excess of his or her fees.

Security of deposits is guaranteed by the personal liability throughout the vertical structure of the Fund and also by the participation of the Russian Federation ministries of Labour and Social Protection.

ADVANTAGES FOR THE REGION.

In the region the Fund becomes a source of long-term investments. Under a market economy, by supporting the system of the Fund, the administration improves the living standards of the population and stabilizes credit and financial relations in the region; this in turn contributes to the stabilization of the political and social situation.

REGULATION OF INVESTMENT ACTIVITY. The strategy of investment activity by the Fund is based on the selection of investment projects and assets-holding organizations. The atmosphere of competition and the right of the Fund to reject a project make it possible for the Fund to influence the investment activity and implementation of regional (or inter-regional) programmes.

FEATURES OF THE FUND BRANCH SYSTEM.

Regional branches of the insurance pension fund have the right to set up affiliates and offices. Affiliates are set up in administrative areas of the region and at large enterprises. In other organizations the Fund is represented by its authorized representatives. Such a developed network makes it possible, by establishing contacts with the population, to discover perspective forms of insurance services and investment of assets spheres.

INSURANCE SERVICES.

At the establishment stage the Fund provides voluntary insurance of supplementary old-age and retirement pensions. In future, on the basis of personal accounts, it is planned to gradually introduce all types of personal insurance. The list of insurance services comprises not only monetary payments but also payments in kind -- everyday nursing, regular preventive and medical attendance, provision of foodstuffs, sanatorium and resort services, etc. It is proposed not only to sell insurance policies but also to use the mortgage mechanism of insuring property: vouchers, apartments, valuables, etc. The Fund can transfer this property as an insurance service to other depositors or to trust companies for commercial purposes.

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POSSIBLE ASSETS, CONSIDERING DEMOGRAPHICS.

In the Nizhni Novgorod region, there are about 4 mln pensioners (including disabled) - 1 mln children (students and schoolchildren) - 1 mln low-income individuals - 1 mln solvent individuals - 1 mln

Worst-case calculations over one year for 1 mln people (including only the solvent individuals): 10,000x1,000,000=10,000,000,000=10 bln rubles

"Optimistic" calculations over one year for 2 mln people (including solvent individuals, and savings of low-income people): 10000x2000000=20000000000=20 bln rubles.

Best-case calculations (including solvent individuals + the savings of low-income people + pensioners): 10000x3000000=30000000000=30 bln rubles.

The use of vouchers (including pensioners + low-income people): 10000x2000000=20 bln rubles.

TOTAL over the year - 50 bln rubles of attracted funds, which equals approximately the regional budget. With a 100% annual interest rate the amount of assets in 5 years will be 800 bln rubles, and in 10 years - 25,600 bln rubles, not counting current payments on the Fund obligations.

INITIAL FINANCING OF BRANCHES.

The above calculations are, of course, approximate and give only an idea of the range of the Fund's potential. It seems logical to hold a competition among regional commercial banks for the right to handle accounts of the Fund and propose that they allow the branch an interest-free loan of 5-10 mln rubles for 2-3 years.

Since it is recommended to keep large reserves in different banks, it is possible, having chosen 2-3 banks providing favorable conditions, to obtain the funds for the initial stage of organization and equipping of the regional network of the Fund.

TERMS FOR ESTABLISHING A REGIONAL BRANCH OF THE INSURANCE PENSION FUND.

Different strata and groups of the population, representatives of entrepreneurial and financial circles, and the local government may be interested in the activity of the insurance pension fund.

Taking this into account it is important to ensure the provision of the following conditions at the Fund establishment stage:

1. The local government's support of the creation of non- governmental supplementary voluntary pension insurance of individuals by using their savings and insurance fees paid by enterprises, institutions and organizations.

2. Attraction of enterprises and organizations with different forms of property, and state and commercial banks located on the territory of the region, to participation in establishing the Fund of the administration.

3. Different forms of informing the population of the aims and perspectives of insurance pension.

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