Russia: EconMin drafts pension system reform proposal

The EconMin has prepared its own proposals for a pension reform, according to information published by the local Vedomosti daily on Friday. Among the main proposals are the ministry’s insistence to keep the share of pension contributions at 22% compared to a 0-6% hikes proposed by the FinMin and CBR. Similarly to the other ministries, the EconMin supports a gradual increase of the retirement age, tougher conditions for early retirement, limiting pension payments for working pensioners, reforming the principles of pension indexation and restructuring budget transfers to the state pension fund.

The EconMin and the FinMin seem to have an agreement for raising the retirement age. The FinMin proposed the retirement age to rise to 65 years for both males and females while the EconMin did not give exact parameters but said that the reform is necessary. However, both proposals face strong opposition from the social block at the government and is unlikely to be approved before the Sept Duma elections. A consensus among the ministry exist on reforming the early retirement system and on limiting payments to working pensioners. All three sides support the inclusion of employees in pension contribution payments. However, the FinMin and CBR propose personal pension savings to be in excess of the present 22% plank (0-6%) while the EconMin insists on keeping the rate stable and split the present 6% funded pension rate between the employees and employers. The ministry proposes to reinstate the funded pension pillar in 2017. The EconMin also wants to keep the obligatory nature of funded contributions unlike the FinMin’s proposal to make such savings voluntary.

All ministries are in favour of reforming government transfers to the state pension fund and changing the mechanism for pension indexation. The EconMin proposes to take into consideration for pension hikes not only the actual inflation rate but also changes to the demographic burden on the pension system. Also, the EconMin would like to see indexation with inflation to be a maximum rather than the minimum hike as set in present legislation. The minimum is proposed to be related to the National Pension Fund income.

The pension reform is a necessary but highly unpopular topic which is why we believe that definite decision will be made no earlier than the fall after the Duma elections. Most likely to reform will be left for November when the government budget is discussed.

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