Will new pension reform be imposed in Russia?

The Russian Ministry of Finance has suggested the draft pension reform following the February meeting headed by the Prime Minister Dmitry Medvedev, Vedomosti reports.

The proposed project includes six points and provides for a change of tariffs, pension and indexation rules [including the reform of early retirement and raising the retirement age].

The structure of the pension system will be also changed: mandatory accumulative pension contributions will be abolished and transferred into quasi voluntary format.

The Finance Ministry proposed to combine the transfer of the collection of insurance premiums under the jurisdiction of the Federal Tax Service with the reform of tariff policy, which provides establishment of a single social security rate.

The officials also proposes to reduce the indexation of pensions for 2017.

The project provides for raising the retirement age for the Russians up to 65 years. In addition, the Finance Ministry proposes to stop paying pensions (or at least part of it) to working pensioners.

The Office plans to introduce changes in relation to state employees, who are eligible for early retirement, in particular, they proposed to gradually raise the necessary experience in order to match the common retirement age.

The Vice-rector at RANEPA Alexander Safonov, speaking with a correspondent of Vestnik Kavkaza, said that the Finance Ministry's proposals are aimed solely at reducing the state pension obligations in relation to citizens.

"The first thing is that the period of receiving pensions for citizens will be reduced. If we take the average life expectancy of men, which is 67, the male part of our population will receive a pension for only two years. The second point is that the Ministry of Finance did not calculate the consequences for the labor market. In the context of the economic crisis, any thoughtless movement in the labor market will lead to a total increase in unemployment. According to the Russian Pension Fund's statistics, the number of people of retirement age who continue career is only 36% today. That is, there are almost 30 million pensioners, who do not work. And when unemployment is growing [it is now about 4 million 600 thousand people, and there are more than a million people who are working on a part-time basis], it will lead to the collapse of the labor market," the expert believes.

"The effect from the savings after an increase in the retirement age will work for only three years. And by the seventh year the budget will accumulate liabilities to the new unemployed, it will need to pay them unemployment benefits, which will amount up to 3 trillion ruble. That is, by the seventh year we will stand before the issue of a new increase in the retirement age. It is clear that the life expectancy will not increase during this period of time. Accordingly, it will be necessary to decide on the cancellation of payments to pensioners," Alexander Safonov explained.

The Ministry of Finance's hope that the elimination of accumulative pension system and switching to voluntary savings will lead to the fact that the population will start to save money is not justified, the economist believes. "The average salary in Russia is 22 thousand rubles. Even taking into account the very low cost of living of 10 thousand rubles, the majority of the population are not able to save money. At the same time I didn't notice any ideas associated with the fight against a gray labor market in the proposal of the Ministry of Finance. There are 16 million people who don't pay a penny of social taxes today, which cause losses of 1 trillion 400 billion rubles," Alexander Safonov said.

The only thing that made sense is a problem leveling insurance rates to 22% for both those who have low wages and those who have high wages, the Vice-rector at RANEPA believes. "Because, according to the law on wages, those with a salary of more than 756 thousand rubles pay only 10% to the Pension Fund," the expert said.

"I think that the voiced proposals are poorly developed. But something out of the six points will be implemented, most likely it will be three areas. Firstly, the abolition of the mandatory accumulative pension system. Secondly, the issue related to the change of the system of receiving early retirement benefits. Thirdly, the alignment of payment rates. The rest will be postponed until the elections in 2018," Alexander Safonov concluded.