Citizens' Long-term Savings Program: how it works and who can participate

 

What is a long-term savings program for citizens?

The Citizens' Long—term Savings Program (CDS) is a voluntary funded savings product with the participation of the state. The instrument provides for the active independent participation of citizens in the accumulation of capital both from personal funds and from pension savings. The law on the long-term savings program was adopted in the summer of 2023. The initiator was the Government of the Russian Federation,
and the main authors were the Ministry of Finance and the Bank of Russia. The law has entered into force
January 1, 2024, with the exception of certain provisions for which special deadlines have been set.

How will the long-term savings program work?

The program assumes that the government creates conditions for the formation of long-term savings. The essence of the program: The program participant makes voluntary contributions within the framework of the PDS, and the program operator (non-governmental pension fund, NPF) invests them, thereby ensuring the profitability of investments. A citizen can save money through voluntary contributions, as well as transfer previously formed pension savings to the program. The state is obliged to co-finance the savings of citizens within the framework of the Social Security Fund at the expense of the National Welfare Fund (NWF) and the reserves of the Social Fund of Russia (SFR, previously it was the FIU). The minimum period of participation in the program is 15 years.

Co-financing from the state will be provided to citizens who signed a long-term savings agreement with NPFs in 2024-2026 and paid contributions in the amount of at least 2,000 rubles per year. According to the law, additional financial support is provided for three years. In the future, this period may be extended by decision of the Government.

The maximum possible amount of government participation in co-financing citizens' savings is 36,000 rubles per year.

Three co-financing formulas are provided within the framework of the PDS
depending on the citizen's income:

-         If the average monthly income of a citizen is no more than 80,000 rubles, the state will deposit another 1 ruble into his account for each ruble invested in the PDS. Thus, in order to receive 36,000 rubles of co-financing from the state, it is necessary to deposit funds for the same amount during the year, or 3,000 rubles per month.

-         With a citizen's income of 80,000 to 150,000 rubles per month, the amount of state co-financing will be 50 kopecks per 1 ruble. In order to receive an additional payment of 36,000 rubles in this case, they will need to invest 72,000 rubles, or 6,000 rubles per month, within the framework of the PDS during the year.

-         If a citizen has an income of more than 150,000 rubles per month, the amount of co-financing will be 25 kopecks per 1 ruble. In other words, to receive the maximum additional payment, you need to invest 144,000 rubles (12,000 rubles per month) during the year.

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The State also guarantees program participants a number of other incentives:

-         insurance of funds deposited by citizens in the total amount of up to 2.8 million rubles (compared to 1.4 million rubles in the deposit insurance system);

-         tax deduction of up to 52,000 rubles annually for contributions of up to 400,000 rubles per year (13% of the contribution amount);

-         the opportunity to withdraw funds ahead of schedule in case of "special life situations".

Citizens' participation in the long-term savings program is assumed only on a voluntary basis, that is, it is not necessary to participate in it.

To participate in the program, a citizen must sign a long-term savings agreement with an NPF. The Law on PDS also provides for the possibility of concluding a long-term savings agreement by legal entities or individuals for the benefit of third parties.

 

How do I participate in the PDS?

Any Russian citizen over the age of 18 can participate in the long-term savings program. You can also save money within the framework of the PDS for the benefit of third parties, for example, children. The funds accumulated under the program will be inherited in full.

To participate in the PDS, a citizen must choose one or more NPF operators who will manage and invest his funds. After that, it is necessary to conclude a special long-term savings agreement and make voluntary contributions. The participant of the program can determine the amount and frequency of contributions independently.

At the same time, it is possible to change NPFs, but no more than once every five years. It is assumed that NPFs will invest citizens' funds "on the principles of profitability and break-even," that is, in conservative financial instruments. As a rule, NPFs invest in government bonds and bonds of the largest issuers, mainly state-owned companies.

Citizens who have participated in the program for at least 15 years or who have reached the age of 55 (women) and 60 (men) will be eligible to receive payments under the CAP. At the choice of the program participant, periodic payments can be lifelong or urgent (for a period of at least 10 years).

At the same time, the program has a unique feature: before the expiration of 15 years (or the age of 60/55 years), a citizen has the right to use all the accumulated funds. This is possible in two cases: the need to pay for expensive treatment or the loss of a breadwinner.

 

About the benefits of a long-term savings program.

A state program has been launched in Russia, according to which the state is ready to pay tens of thousands of rubles to people. Whether the new product will be more profitable than the contribution and what benefits the program participants will receive, in an interview aif.ru the Deputy Minister of Finance of the Russian Federation Ivan Chebeskov told.

— What is the purpose of the new long-term savings program? Is it for retirees?

— No, not just for them. Since the money in the accounts is now managed by non-governmental pension funds (NPFs), it may seem that this is a "piggy bank" for pensioners. But we look at the program as a profitable and universal savings tool for all people. They determine the purpose for which they save money. Future pensioners — for the sake of increasing their pension, and for young parents it can be savings for their children's studies or the formation of an "airbag".

 

— Now it's fashionable not to save, but to invest.

— A long—term savings program is an investment, since part of the money is invested in the stock market. And long-term ones. Practice shows that the longer the investment period, the higher the income. This is not stock speculation or cryptocurrency trading, where it is easy to lose everything. To work in the stock market, there are also brokerage and individual investment accounts (IIS), but there a person needs to make his own decisions. This requires time and special knowledge. Professional managers are responsible for the strategy in the PDS. They work according to the established rules and are responsible for their mistakes.

 

— What if these accounts are frozen, like funded pensions?

— The account in the long-term savings program belongs to the person himself, not to the state, in this it is similar to a bank account. It cannot be frozen, and money can be withdrawn from it at any time, even if the contract has not expired yet. However, as in the case of a regular deposit, it is associated with the loss of accumulated income. By the way, the funded pension can be transferred to the personal income tax account and spent after the expiration of the contract.

 

— What happens if the NPF suddenly goes bankrupt?

— Such cases have indeed occurred in the past, as well as various unfair practices. The Bank of Russia has carried out work in this sector, and now stricter requirements are imposed on the work of funds. Like banks, they are under the supervision and control of the Central Bank. If the operator receives a loss, he will be obliged to compensate for it at his own expense. We have also provided insurance payments in the range of 2.8 million rubles. This is twice as much as for a bank deposit. If something happens to the operator during the years that the PDS agreement is in effect, it will guarantee that people will receive their invested funds and all the accumulated income. In the long-term savings program, money is reliably protected.

 

— Wouldn't it be easier for people to put money into a regular deposit?

— Deposit rates are high now, but this will not always be the case. They follow the key rate of the Bank of Russia, and it varies depending on the economic situation. In a year, the yield will be different, and we expect lower rates. In the long term, a PDS account will be more profitable than a regular bank deposit. Even now, with high returns, people can get 15-16% per annum on deposits, minus taxes. And under the PDS program, the yield in the first year, subject to a number of conditions, can exceed 100% per annum, and in three years — 60%. Better than any other financial instrument. This will happen due to government incentives — co-financing and tax benefits. I would like to emphasize that participation in the program is completely voluntary. If you want, participate, if you don't want, don't participate. Our goal is to help people save as efficiently and reliably as possible.

 

— How much money is the state willing to give people?

— Every year, for a contribution amount in the range of 400 thousand rubles, you can receive a tax deduction. This is immediately a plus of 13% to the profitability for the year. The amount of co-financing depends on the individual's level of well-being. Most people earn an income of up to 80,000 rubles per month, before taxes. The state will transfer one ruble to their accounts for each ruble they have independently invested, and so on up to 36 thousand rubles per year. For example, a person contributes 3 thousand rubles each month. at your own expense of the PDS, for a year it will be 36 thousand. The state will double this amount and additionally refund 4,680 rubles for the tax deduction. This will give a return of 113% in the first year, not counting the proceeds from the operator's money management. Those with incomes from 80 to 150 thousand will receive one ruble for every two rubles. For people with incomes above 150,000 rubles per month, co-financing will be one in four. For them, the opportunity to receive personal income tax deductions comes to the fore in terms of benefits, now it is 13% or 15%.

 

— But according to the current rules, the state co-finances contributions only for the first three years.

— We do not exclude that the terms of co-financing will change in the future. But first you need to see how the program will work. We currently have a three-year budget cycle, so the Ministry of Finance is planning expenses for three years, including the costs of co-financing the accounts of the SDS. You will be able to receive a tax deduction every year for the entire period. As you can see, the yield can be very high at the start, then compound interest comes into play. This allows us to say that in the long term it will be a profitable investment. Together with the Bank of Russia, we will improve the work of NPFs so that the return on investment increases. This is the task set for us by the president, since the stock market is an important part of the economy and the most effective tool for distributing money and capital in the country. Collectively, he always performs better than the team of a particular bank.

 

— Does the government guarantee that the returns on the accounts of the CDS will outpace inflation?

— We are counting on such a result, but we will not give any guarantees that the operators will achieve specific targets. They have an obligation not to lose money, they are responsible for this with their license. But they have no obligation to outpace inflation every year. This would tie their hands, in which case they would choose only the most conservative investment strategies. As a result, this will only reduce the benefits of the PDS accounts. The advantage of long-term investments is that they give a good income with a much higher probability than stock speculation. But it takes time. NPFs are market players, they themselves are interested in working with maximum efficiency for themselves and their clients. In the future, insurance companies will also be added to the list of program operators. This will further increase the competition.

 

— They say that operators charge a fabulously high commission of tens of percent for their services.

— No, it's not like that. NPFs, of course, have a commission for money management, but it is within a few percent.

 

— Will it be possible to withdraw money from the PDS account ahead of time without loss of income, co-financing and tax deductions?

— In general, the term of the contract is 15 years. People will be able to close it earlier after reaching the age of 55 for women and 60 for men. If a man opened a personal income tax account at the age of 53, he will be able to withdraw the money and all income after seven years. People of pre-retirement age will have the right to open an account, receive co-financing and close it after three years without loss of income. But they will have to return the tax deductions in this case. The Tax Code prescribes a minimum term for a long—term savings program to receive deductions - five years. But we still expect that people will have a different goal setting: not to maximize subsidies and benefits from the state, but to generate savings. There is simply no better tool for this, here is the maximum ratio of income to risk.

 

— Speaking of risks, how much will such savings be protected from fraudsters?

— The Ministry of Finance faces the task of digitizing all financial services, so that it will be possible to open and close a PDS account remotely. However, in the long-term savings program, it will be more difficult to terminate the contract and withdraw money than in the case of a regular bank account. In the bank's application, a person confirms a money transfer with an SMS code, and an enhanced unqualified electronic signature (UNEP) will be needed in the PDS. This is a higher degree of protection. Plus, you will need to confirm the early termination of the contract.

 

— What does international experience say about such savings programs?

— In many countries, this is a very successful experience, people are actively investing money in non-state pension funds. If the employer is additionally engaged in co-financing, then he has a good competitive advantage. People are more willing to join such companies and less likely to quit. There is no such thing in Russia yet, but I do not rule out that it will appear in the future. We also have high competition for effective personnel.

 

— Will the list of diseases be expanded, for the treatment of which it will be possible to spend money from the PDS account without losing benefits?

— We do not exclude this, but first we need to look at law enforcement practice. Now the rules are such that people can make unscheduled use of savings in particularly difficult life situations. It is not yet clear whether this mechanism needs to be expanded. In any case, the person's own contributions will be refunded at any time. They always belong to the citizen. They can even be inherited, excluding the option where system participants choose lifetime payments. Personally, I think that a long—term savings program is an excellent, useful financial product, and I recommend it to all my loved ones. If, after the expiration date, a person does not withdraw all the money at once, but chooses regular payments, then this will become his additional source of income, along with a salary or pension.