What the current pension system is and whether it is possible to get your savings ahead of schedule are the issues at the forefront of every citizen approaching the age of retirement. Recently, in connection with the emergence of non-state funds, there are even more questions. Let’s analyze whether it is possible to withdraw the funded part of the pension ahead of schedule? What can citizens expect today?
How is a future pension formed?
The system for sharing the total amount of pension contributions has been operating in Russia since 2002 and is relevant for citizens born after 1967 inclusive. According to the reform, all pension contributions made by the employer are allocated to the insurance and funded part of the future pension of the employee.
Deductions are made in the amount of twenty-two percent of the wage fund in the following ratio:
- Six percent go to the joint part to cover the expenses associated with the pension provision of citizens who have already retired. This percentage of deductions does not affect the state of the individual account of the employee.
- Ten percent are transferred to the insurance part, are taken into account when calculating the future pension, but are actually spent as a joint part.
- Six percent go to the individual savings of the employee and in no way affect the payment of maintenance to current retirees.
Mandatory deductions of citizens of the older generation (born before 1967) are distributed in another way. This age category does not fall under the mixed pension system, therefore, does not have separate from insurance savings. Their pension contributions are distributed in the following order:
- six percent is transferred to the account of the joint part of the fund;
- sixteen percent go to the insurance part of the employee's pension.
Pension Reform
After the pension reform carried out in 2015, the procedure for the formation of future pensions has changed. In particular, the state abandoned the funded system, having designated the insurance part as a priority. At the same time, citizens from among the participants in the reform of 2002 were given the choice regarding the distribution of pension contributions, namely: refuse or keep the funded pension. Accordingly, in case of refusal, the employee's periodic payments in the amount of sixteen percent are sent only to the insurance part of the pension. Previously made savings are kept by the future pensioner and are subject to investment in order to receive a certain percentage of profit from participation in financial transactions.
While maintaining the funded system, part of the pension contributions, as before, is subject to transfer to the account of personal pension savings of citizens in the previous amount, which entails a decrease in the volume of the insurance part. In addition, unlike insurance premiums, employee contributions are not indexed by the state. Before turning to the question of whether it is possible to withdraw the funded part of the pension ahead of schedule, we will consider the advantages and disadvantages of the modern system.
Pros and cons of the funded system
From the beginning of the introduction of a new procedure for the formation of a future pension, Russians were given the opportunity to choose the organization in which the accumulated funds will be stored: a state fund or non-state companies.
In turn, the company managing the funds uses the funds accumulated by citizens to invest in the financial market in order to profit. It is difficult to predict how profitable such operations will be. Much depends on the experience of the company and the ability of the employee to make the right choice in favor of a leader among participants in the financial market. In case of failure, the company guarantees the return of the initial amount of deductions made by the employer, while, of course, we are not talking about any additional income. Therefore, the question: “Can I withdraw the funded part of the pension?”, An increasing number of citizens are interested.
Unlike insurance savings, funds held in private pension funds are , as before, accounted for in cash, not in points.
The mechanism for determining the funded pension is much easier for the average citizen to understand, and in addition, legislation allows the transfer of funds accumulated over the years of labor activity by inheritance.
What is included in the funded part?
Depending on the employee’s participation in special pension programs, his accumulation over the period of work experience are made up of the following deductions:
- periodic deductions in the amount of six percent, replenishing the funded part;
- payments transferred by the employer under corporate pension schemes;
- insurance contributions made by the employer and the state in the framework of co-financing;
- family capital funds directed at the request of a woman to form a future pension;
- part of the profit earned by the management company as a result of investing funded pension contributions.
The amount is rather big, especially for those who have a good official salary. In many respects, therefore, the question of whether it is possible to withdraw the funded part of the pension is becoming more urgent. This issue is regulated by law.
The right to receive accumulated funds
The funds accumulated during the period of employment are payable to persons who have reached the total retirement age, including early retirement, regardless of the purpose of other payments (for example, disability pensions, monthly payments to citizens who have lost the bread-winner, and other types of maintenance).
The emergence of the right to receive funds accumulated by a citizen is associated with the following conditions: the amount of pensioner's savings must exceed five percent in relation to the size of the insurance pension. In this case, the amount of the fixed payment and the amount of funds available in the account are taken into account.
You can withdraw money from the funded part of the pension in the form of a lump sum payment if the amount available is less than the amount established by law.
Right to early security
As a general rule, it is not possible to remove the funded part of the pension ahead of schedule. The right to receive funds arises from the moment a citizen reaches the age of access to a well-deserved rest. Age is a general criterion for the appointment of both types of pension provision for citizens.
Since the retirement age varies depending on working conditions and type of work, the following categories of workers have the right to early appointment of funded pension:
- teachers (educators) in educational institutions;
- medical workers;
- citizens who have earned seniority in the Far North;
- railway workers;
- geologists;
- flight test workers.
A detailed list of categories of workers eligible for early exit on a well-deserved rest is determined by federal law.
Who has the right to withdraw the funded part of the pension in the event of the death of a person?
The insured person having accumulations is entitled to draw up a testamentary disposition in favor of the successors identified by him.
Thus, in the event of a premature death of a citizen, the appointed heirs acquire the right to withdraw the funded part of the pension stored in the testator’s personal account.
If during the life of the insured person no orders were left, the right to inherit the available funds shall pass to the heirs under the law. The primary successors in accordance with applicable law include: spouse, parents and children of the testator. If there are none, the successors of the following queues are called for inheritance.
Moreover, the funds accumulated by the deceased citizen shall be paid to the heirs in the following cases:
- before the appointment of a pension in the presence of appropriate deductions in the account of the deceased;
- after the appointment of urgent pension payments in the amount of the balance of unpaid funds;
- after calculation until payment of the prescribed amounts within four months from the date of death.
Note! If an insured person is granted an indefinite life pension, the accumulated funds after his death are not paid to the heirs.
Early repayment upon occurrence of an insured event
Is it possible to withdraw the funded part of the pension before the legal age? In some cases, the legislation allows the possibility of a lump sum payment of funded pension funds. Cases when it is possible to withdraw the funded part of the pension are regulated by law. Claim for early receipt of funds is entitled to:
- invalids of the first, second and third groups, recognized as incapable of work, as well as citizens who have lost breadwinners;
- citizens who, upon reaching the retirement age, lack the necessary seniority or have a low coefficient, which does not allow him to accrue old-age pension;
- recipients of state benefits who do not have sufficient length of service or the necessary coefficient for calculating an old-age pension;
- persons whose accumulated funds are insignificant (less than five percent of the amount of the insurance pension, taking into account the fixed payment and the calculated funded pension).
Urgent retirement benefits
Provided that capital is sufficient to establish a funded pension, the possibility of accruing both urgent and unlimited payments to a pensioner from accumulated pension contributions is allowed.
Accordingly, an unlimited pension is granted for life, while urgent payments are set for several years. A pensioner has the right to independently choose the period of such payments. However, this period cannot be less than ten years. Citizens who have reached retirement age, including those who retire ahead of schedule, have the right to count on urgent payments, provided that deductions to the funded part were made by additional contributions from:
- additional contributions from the employer;
- voluntary deductions of citizens in the framework of co-financing;
- maternity capital funds.
Conclusion
Is it possible to withdraw the funded part of the pension ahead of schedule? Based on the requirements of the legislation in force today, the right to use these funds does not arise earlier than a citizen reaches a specified age. The exception is only the premature death of a person who has not reached the retirement age. True, in this case only his successors have the right to use the funds.