Russia's Finance Ministry tapped its second rainy day fund, the National Welfare Fund (NWF), using it for the first time to cover a  $2.8bn  deficit in the National Pension Fund payments due this year, RBC daily reported on October 3 citing the announcement of the ministry.

Pension reform has been one of the most pressing unsolved structural issue for Russia for years, with the pension system running a deficit instead of becoming a source of badly needed "long" investment money.
 
Russia has two rainy day funds and the NWF has been largely untouched so far as it was originally intended to top up social, and especially pension payments, in the future.

It has long been clear that the pension system would come under pressure due to the collapse of life expectancy in the 90s. Where two workers’ social payments supported one pensioner, that ratio has fallen to one worker paying for one pensioner. Russia’s population has been growing in recent years thanks to highly successful healthcare and natal care reforms as well as generous children subsidies. Russian life expectancy just topped an all time high of 72.5 years, but the overall population growth just passed peak and will fall from now for several years putting thanks to the demographic dent in the age pyramid caused by the 90s putting more strain on the pension system.

Prudently, the NMF was not supposed to be touched to cover the anticipated shortfall in pensions, and has been remarkably stable. However, as the economy is increasing dire straights the fund has been put to its intended use – but earlier.

Russia’s second rainy day fund, Reserve Fund was 70% exhausted in 2016 and is likely to be used up in 2017. This fund was always intended to top up budget spending in times of low oil prices.

The rules governing the uses that the NWF can be put to have been recently changed and now its cash or some $72bn are available to the Ministry of Finance for general purposes. Russian Finance Minister Anton Siluanov said earlier this year that he expects to use up all the Reserve Fund by next year and the NWF could be used up within a few years after that.

As of October 1 the Reserve Fund amounted to RUB0.99 trillion ($17bn) and the NWF to RUB4.2 trillion ($72.6bn), according to the Finance Ministry, with the NWF losing $2.8bn as compared to the previous month. Against this the country’s hard currency reserves have been rising steadily and ended September at over $427bn, well up on the crisis low of about $320bn but way below the pre-crisis high of about $600bn.

The decision to use NWF money to cover the pension fund shortfall marks the first time that NWF has been tapped to cover pension deficit since its establishment in 2008, although such function of the fund has been foreseen in its statutes. 

In 2013 and 2014 the fund was used for financing infrastructure projects and quasi-state institutions such as Russian Railways, Vneshekonombank, and others that bought the briefly fashionable infrastructure bonds.

Apart from covering federal budget deficit and pension deficit, the NWF could be still invested more actively, with at least RUB290bn to reportedly be directed to the Russian Direct Investment Fund (RDIF), among other projects.