Transforming a centrally planned economic system into one based on market forces calls for the restructuring of eco- nomic institutions, the privatization of a vast number of State enterprises, and the decontrol of prices and wages. In the short term, such changes have exacerbated the difficulties faced by former Communist countries, the Soviet Union included, in meeting social needs in a market-based economy. Centrally planned economies typically promised full employment, free education, and free or low-cost housing and health care, while wages were low and the quality of social services was poor. There were generally no programs to pro- tect unemployed citizens or to cope with inflation. The Central Government, which monopolized social policies and programs, offered its citizens few incentives to be Income Security in Transition for the Aged and Children even partially responsible for their own economic security, and allowed Little, if in the Soviet Union and in the Russian Federation any, local government or nongovernment by Lillian Liu * initiative to supplement the State efforts. Under the pre-Gorbachev Soviet sys- A dynamic process of social security reform took place during the tem, beneficiaries of social security’ - economic transition in the Soviet Union from 1985 through 1991, and in (1) disability, and survivors; (2) work- the Russian Federation in 1992. Despite administrative and financial diffrcul- related disability and death; and (3) allow- ties, the Gorbachev reform objectives have been incorporated (with modest ancesfor families with childrende- pended on fixed benefits that were revisions) into the Russian Federation pension legislation and family allow- especially vulnerable to inflation. ance programs. Following the adoption of a radical economic reform policy in As of January 199 1, under the first January 1992. policymakers in the Russian Federation have been hard pressed and second of the programs specified to meet rising social needs under severe fiscal constraints. As the number of above, there were 6 1.2 million pensioners the vulnerable population has increased, and as the emerging poor have had to (2 1 percent of the total Union popula- face more severe hardships, the social security system has overcome unprec- tion) in the Soviet Union, including edented political and economic disruptions to become fully operational. Local 33.8 million (23 percent of the total Rus- governments and civic groups are organizing assistance to help meet needs sian Federation population) in the Russian where the State-operated programs have been inadequate. These efforts, how- Federation, which was the largest of the ever, have been made haphazardly. 15 constituent Republics of the U.S.S.R. Approximately three-fourths of these pen- sioners relied on pension benefits as their main source of income in the Soviet Union and in Russia. A large number of people also receive family allowances (the third *Oftice of International Policy, Social Security Administration. This article program specified above). According to updates the author’s “Social Security in Transition in the Soviet Union (1985-1991) 1989 census data, some 6 1 percent of the and in the Russian Federation (1992),” in Economies of the Former Soviet Union, 73 million families in the Soviet Union U.S. Congress, Joint Economic Committee, Washington, DC, U.S. Government had at least one child; in the Russian Fed- Printing Office (forthcoming). The section on the Russian Federation is substan- eration, 58 percent of a total of 40 million tially revised based on information the author acquired from her participation in a families had one or more children under ?-week World Bank fact-finding mission to Moscow, and to the Altai, Cheliabinsk, age IS.* By 1990, cash allowances were and Novosibirsk regions. made available to all families with one or more children,

Social Security Bulletin l Vol. 56, No. 1 9 Spring 1993 60 This article examines the transition ries were funded by the current genera- recipients of pensions and grants who of the social security system in the tion of workers. Such programs may be had begun receiving benefits years ear- Soviet Union during the Gorbachev funded by employer/employee contribu- lier. This state of affairs had contributed years (1985-9 1) and in the Russian tions (as in France), government budget much to the poverty of some pensioners Federation during 1992. The discussion allocations (as in Australia and New and recipients of family allowances. is presented in six parts: First, the Soviet Zealand), or a combination thereof (as Moreover, the pre-Gorbachev social social security system prior to 1985 on in West Germany, the Netherlands. and programs were notable for their low the eve of Gorbachev’s reforms; second, Sweden). In the Soviet Union. pension level of public assistance to those who a summary analysis of social security funding was based on a combination of never worked or were unable to work reforms during 1985-90, and the four budget allocations and employer contri- due to child rearing or disability since objectives of these reforms; third, the butions; employees did not contribute.h childhood.‘” In contrast, some Western implementation of new social security Family allowances were funded from economies (For example, the Nether- programs under political and economic general revenues (as in Canada, West lands, Sweden, and the United Kingdom) restructuring during 199 1; fourth, the Germany, the Netherlands, and the provide a floor of subsistencebenefits for impact on social security programs of the United Kingdom) and were paid to fami- all residents or citizens, while others (for collapse of the Union Government; fifth, lies with low income and those with a example. the United States) offer means- social security developments under radi- large number of children (as in Japan). tested benefits for the poor. Most coun- cal economic reform in the Russian There were. however. significant tries guarantee a routine benefit adjust- Federation during 1992; and sixth, differences between the pre-reform ment according to price and/or wage remaining issues regarding income secu- Soviet social security system and the indices so that benefits and allowances rity programs for the aged and children. prototypical Western system. Under the usually rise with the overall standard of pre-Gorbachev system, the combination living. The Pre-Gorbachev of relatively low retirement age, short Characteristic of the centrally plan- service tenure required for pension eligi- ned economic system, the Soviet social Social Security System bility, and an inadequate reward struc- security system was financed primarily Prior to 1990, two laws governed ture for longer service was generally from general revenues. No employee pension programs in the Soviet Union: regarded as ineffective for productive contributions were required. State- The 1956 Law on State Pensions covered and prolonged labor. The normal pen- sector employers (State farms, enter- workers and employees of State farms, sionable ages for men (60) and women prises, and institutions) paid an average enterprises, and institutions, and the (55) were low by Western standards.’ of 9 percent of payroll to social security 1964 Law on Pensions and Benefits for The required minimum years of service in 1989 (ranging from 4 percent to Collective Farmers covered members of to qualify for a pension was 25 for men 14.4 percent, varying across industries). collective farms and their families. Al- and 20 for women. Supplementary ben- a rate far below the combined contribu- lowancesto families with a large number efits for longer service required either a tions by employers and employees in of children were first introduced in 1944. minimum of 10 years over the required Western economies.” Over time, these aliowances were ex- minimum years of service or at least Finally. unlike most Western gov- tended to children of unmarried mothers 15 years of uninterrupted service in the ernment social security systemsthat co- and of low-income families. The 1977 same enterprise.8 Also, the Soviet ben- exist with private pension plans. the Constitution of the U.S.S.R. incorporated efit computation was based on wages Union-level Soviet Govermnent provided the existing family benefit programs, during the last 12 months before retire- the only income security for the average thus providing a legal foundation for ment. As a result, retirement income was citizen. There were very limited (if any) thesebenefits.) not determined by one’s life-long earn- republic or locally initiated complemen- The pre-Gorbachev system shared ings records (a function of productive tary cash benefit programs or charity a uumber of the features that character- labor) but on the worker’s ability to ne- available to populations suffering from ize social security systems in Western gotiate a higher wage for the last year economic hardship. economies.The Soviet pension benefits preceding retirement.g were wage related, as is the case in most Since there were no regular cost-of- The First Phase of Transition: Western economies.4The Soviet pension living benefit adjustments, recipients of Legislative Reform, 198WO systemhad separate benefit formulas for fixed benefits from family allowances urban and agricultural labor forces-a and pensions saw their income deterio- The impetus for social security re- policy that is also applied in other coun- rate in value over time. Even though the form had been present throughout the tries (for example, Austria, France, and Government controlled the prices of 1970’s and early 1980’s, before Mikhail West Germany).5 goods and services, wages had risen over Gorbachev took the position of General Pension program financing was the decades. Current wage earners and Secretary of the U.S.S.R. Communist basedon the “pay-as-you-go” method, new pensioners could afford a living Party.” By the mid- 1980’s, researchers whereby current obligations to beneficia- standard that proved elusive to many claimed that hidden inflation had impov-

Social Security Bulletin l Vol. 56, No. I l Spring 1993 61 erished many pensioners, single-parent Cross, Red Crescent. Young Pioneers, Family Allowances, 1990 households, and families with two or and Communist Youth League as poten- more children. Soviet Government data tial partners in projects to help alleviate In 1990, two resolutions (in April showed that, in 1989, over 80 percent of poverty. In an unprecedented move, the and in August) detailed the Govern- the 43 million persons who lived in pov- Government introduced a voluntary ment’s policy for alleviating poverty erty (with income under 75 rubles a complementary pension program in among families with children and for month) were pensioners. Of the rural 1987 to supplement social security in- partially protecting these allowances pensioners, 90 percent were living in come. Before reaching retirement age, from inflation. Both resolutions were to poverty. Is workers (men aged 35-59 and women take effect in January 199 1. The April aged 30-54) could choose to pay monthly resolution linked family allowances to premiums through their employers as the minimum wage (70 rubles a month Incremental Revisions, 1985-89 part of a group insurance “contract” in January 199 1, with adjustments to be Since the promulgation of the with the State Insurance Administration. made for price increases). A monthly 1956 and 1964 laws, various decrees Depending on the number of years under allowance equal to the minimum wage and resolutions have increased pension contract, the size of the premium, and would be granted to working mothers benefits and extended coverage to the the age of the participant, the worker (with more than 1 year in covered em- disadvantaged. Ad hoc incremental could receive lo-50 rubles per month in ployment) until the child is 18 months changes accelerated from 1985 through addition to his or her monthly pension old. The same amount also applied to the 1989; all were attempts to partially from the State-operated social security upbringing of children of widowed par- ameliorate some of the perceived short- system.Is ents, and to children residing in orphan- comings in the social security system. Ad hoc measures during 1985-89 ages or in children’s homes. Nonworking Among these measureswere one-time to redress perceived shortcomings in mothers aged 18 or older and working increases in minimum old-age benefits existing income security programs mothers whose tenure of service fell (and corresponding adjustments for coalesced with two other concurrent short of 1 year would receive a monthly disability and survivor pensions) for developments. First, the Gorbachev gov- benefit of 50 percent of the minimum collective farmers and State employees ernment was designing a new, market- wage. ( 1985 and 1989, respectively); improve- oriented “social contract,” namely, a The August resolution raised the ments in cash grants to children in new prescription of social values and universal, one-time birth grant to three poor families (1986-87); and newly material rewards to revitalize the work times the monthly minimum wage for introduced grants to disabled children force and economy while solidifying each child, replacing the birth grant and single elderly and disabled persons public support and political legitimacy.16 that had differentiated rates (higher who were not eligible for pensions Second, as the policy of restructuring rates for families with more children). (1985).‘4 the centrally planned economic system It also improved the monthly allowance To partially offset the erosion in gradually took hold throughout the late (of 50 percent of minimum wage) to value of fixed benefits over time, a 1985 1980’s, a blueprint for social security in single mothers for each child from age decree introduced a mechanism by which a transition economy also took form. By 1X months through 16 years, and estab- State employees’ pensions awarded more 1990, all three developments culminated lished cash grants for children (aged 18 than 10 years earlier were adjusted up- in (1) a draft proposal for a social safety months through 6 years) in poor families ward. Benefits in this category were re- net during the transition to a market (earning up to two times the minimum calculated, adding 1 percent of the wage economy;” (2) resolutions and decrees wage) at the rate of 50 percent of the base for each year that had elapsed since further expanding the coverage and minimum wage.‘* the pension was first awarded. For col- improving the benefits for families with By April 199 1, the objective of lective farmers, a 1987 decree stipulated children; and (3) the May 1990 U.S.S.R. “minimum income security for all” had that minimum pensions awarded more State Pension Law. Taken together, these been woven into the family allowances than 10 years earlier were to be raised initiatives underscored four objectives for program. There were 11 categories of from 40 rubles to 50 rubles a month. the country’s social security programs benefits payable to families with children Efforts to bring a pluralistic ap- during economic transition: a minimum of different age groups for varying needs. proach to income security also began level of income security for all, a new Moreover, these benefits were no longer in the mid-1980’s. In 1985, Soviet au- social contract for the work force, a mod- limited to families with at least two thorities proposed to central ministries ern social insurance system (for pen- children, or subject to a means test. All other than Social Security to offer in- sions) that was deemed compatible with benefits were linked to the level of the kind subsidies, and suggested that local and would facilitate the transition to a minimum wage (albeit with ad hoc mod- governments offer added cash or in- market-based economy, and a pluralistic ifications). I9 The 11 categories fell into kind subsidies from local budgets to aid approach to income security in anticipa- four broad groups: Benefits payable to all the impoverished population groups. tion of a decentralized and open eco- families with children, regardless of The authorities also enlisted the Red nomic and political system. income or any other qualifying condi-

62 Social Security Bulletin l Vol. 56, No. 1 l Spring 1993 tions; those payable to persons meeting a tective shield of minimum income for secutive years within the last 15 years meanstest (means test waived in Russia, pensioners to help them endure the hard- of continuing service. Pensioners would Belarus): those payable to working ship during transition, it incorporated a be permitted to work for remuner- mothers; and to disadvantaged families. new social contract to reward productive ation, sometimes at their old jobs, with- Families were entitled to all benefits for labor, it brought the Soviet system closer out causing a reduction in their benefit which they were eligible with no offsets. to the prototypical Western model of amounts. All families received (1) a one- social insurance, and it adopted a plural- The social insurance model.-With time grant for the birth of each child, istic approach to pension security. The the new pension law, the Gorbachev (2) monthly payments to mothers car- Central Government pension program government embraced the social insur- ing for children up to 18 months old, was no longer to be the sole source of ance model for income security that (3) monthly allowances to children aged income for pensioners. is favored by most market-based econo- 18 months to 6 years old. Families with Minimum income securitJ?for mies. Specifically, the Union Govern- per capita income less than four times all.-The new legislation addressed the ment budget would minimize its sub- the minimum wage received (1) quar- shortcomings of the existing system sidies to pension benefits and family terly cost-of-living compensations for in providing income security to pension- allowances. Instead, social security for any child up to 18 years of age and ers and the elderly and disabled who employed persons would be financed (2) a monthly benefit until age 16 if the never earned the entitlement to a pension mostly by payroll contributions from child does not receive any other social through covered employment. It also employers and partly by employee con- security benefit (or to age 18, if a student prepared for the need to protect these tributions. The collected funds would not receiving a stipend). population groups from price and wage cover all expenditures for the work- Working mothers were further decontrol under the forthcoming eco- related “labor pension” and the “social granted (1) paid maternity leave to nomic reforms. To rectify past unequal pension” (the public assistancecompo- care for a child under 18 months and treatment of urban and rural pensioners, nent of the pension law). However, the (2) compensation for unpaid leave to the new law unified pension benefits for funds would also pay for special compen- carefor a child under 3 years. Allow- urban workers and collective farmers by sations for victims of the Chernobyl ancesto disadvantaged families included raising rural pension benefits to the level nuclear power plant disaster, and the monthly benefits payable to (1) single of urban pensioners. To help alleviate costs of some family allowances, even or unmarried mothers, or foster parents poverty among the aged and the disabled though these are not part of the pension with children under age 16 (age 18 if who did not have the required years of program.” a student and not receiving a stipend); work to qualify for a work-related “labor While pension program financing (2) children whose parents were evading pension” a “social pension” was cre- was based on the “pay-as-you-go” support (to age 16, or 18 as above); ated. More importantly, the new law method as before,24a major restructuring (3) children of widowed parents, or stipulated that the minimum pension of the management of the pension funds children in orphanages, or in children’s would be linked to the minimum wage, was introduced. Three months after the homes(to age 16, or 18 as above); and which in turn would be adjusted periodi- May 1990 pension law was promulgated, (4) children under age 16 who were cally to partially compensate for wage an independent U.S.S.R. Pension Fund infected with HIV or had AIDSZo (See and price increases.22 was decreed into being, under the jur- table 1.) A new social contract.-Govern- isdiction of the U.S.S.R. Council of ment reformers also took several decisive Ministers (that is, the cabinet). The steps away from socialist welfare state management of pension financing was U.S.S.R. State Pension Law, 1990 provisions. The May 1990 pension law thus removed from the State budget With the promulgation of a new adopted provisions that followed the accounts and made independent of the unified U.S.S.R. State Pension Law in prevailing policy guidelines to revitalize State Bank and the Ministry of Finance. 1990, the Soviet Government introduced the labor force. It granted higher benefits The U.S.S.R. Pension Fund system, a systemicoverhaul of the country’s for longer service by adding 1 percent of including counterpart republic and local pension program. The first signal of the assessedwage to each year of covered government pension funds, was desig- Government’s determination to revamp employment beyond the minimum years nated to collect contributions, appropri- the antiquated 1956 and 1964 pension of service required for benefit eligibility, ate the collected funds for benefit pay- laws came in 1986, when the Politburo and it raised the maximum benefit from ments, and manage and capitalize fund of the U.S.S.R. Communist Party’s Cen- 2.5 to 5.2 times the minimum pension. reserves (if any). In a cryptic statement, tral Committee approved the preparation Old-age benefits were no longer com- the “Regulation on the U.S.S.R. Pension of major pension reform.*’ After 4 years puted according to the last 12 months of Fund” refers to this newly created insti- deliberative process to reform the pen- earnings before retirement. Instead, in tution as “an independent financial and sion program, the 1990 law embodied all order to better reward productive labor. banking system,” and states that, among four objectives of income security in benefits would be computed from the other tinctions. it “places fund reserves economictransition: It provided a pro- highest average earnings of five con- in short- and long-term government

Social Security Bulletin l Vol. 56, No. 1 l Spring 1993 63 Table I.-Family allowances in the U.S.S.R. (1991) and in Russia, 1992-931 [In current rubles]

12/11926 2/l/93 ’ 4/2/9 I 3 I I2102 4 6/l/92” mw = R900 mw = R2,250 Benefits by age of children’ m* = mp = R 165 mw = mp = R342 mw = ml, = ~900 mp = R2,250 mp = R4,275 AI birth: (1) One-time granl for birth of each child. . 250 3 x mw 2,700 5,400 6,750 To I8 months: (2) To mother with at least l-year covered employment or on leave and in school, or mother under age I8 with less than l-year covered employment 110 60’% x mw 500 1,000 1,250 (3) To nonworking mother (or working mother aged 18 or older with less than l-yen, covered employment). 80 45% x mw 400 800 I,@0 18 months to 6 years: (4) To children agtid I8 months to 6 yaars. . 80 45% x mw 400 800 1,000 To age 3: (5) To mother (or relative) on unpaid leave to care for child.. . 60 35% x mw 300 600 750

To age 6: (6) To single or unmarried mother; foster parents; or child whose parent(s) evading support...... 80 45% x mw 400 800 1,000 Age 6 to I6 (or 18): (7) Single or unmarried mother; foster parents or child whose parent(s) evading support (to age 18, if student and not receiving stipend)...... YO 50% x mw 450 900 1,250 To age 16 (or 18): (8) To child not receiving other social security subsidy; student 1101receiving educationa‘ slipand...... 40 25% x mw 200 400 500 (9) Nonworking able-bodied person caring for a child with total disability requiring constant attendance. 300 600 750 (10) Children with HIV or AIDS.. 500 I .ooo 1.250 (I 1) To children of widowed parents, or children in orphanages or in children’s homes (to age 18, if student and not receiving stipend). 1 IO 60% x mw 500 1,000 1,250

Quarterly compensation for cost of children’s goods: (12) To age 6...... 50 30% x mw 250 500 625 Age 6-13.. _. _. 60 35%. x mw 300 600 750 Age 13-18...... 70 406 x mw 350 700 875

’ The monthly minimum pension and monthly minimum wage are ’ “On Increasing the Amounts of Social Subsidies and Compensation denoted mp and mw, rzspcctivzly. Paymnts in 1992,” Rossiiskaia gnzcla , 23 May 1992, p. I ’ Benefits (2) through (I I) arti monthly payments. (translated in FUIS-USR-92467 5 June 1992, pp. 42-43). ’ “On the Reform of Retail Prices and the Social Protection of the ‘ “Edict of the Russian Federation President ‘On Increasing the Population,” Prada, 21 March 1991, pp. l-2 (translated in p/I/S’- Amounts of Social Benefits and Compensatory Payments to Families SOV-91-056, 22 March 1991, pp. 35-36). with Children and Other Categories of Citizens,’ ” Russ&ii wsfi 28 ’ Monthly benefits are expressed as a ration IO the minimum wage. Novcmbcr 1992, p. 4 (translated in FZIIS-USR-92-159, 14 December “Ukase of the President of the Russian Soviet Federated Socialist lYY2, pp. 7-8). Republic on Increasing Compensation Paymants in 199 I- 1992 and the ’ “Yeltsin Dccrec Increases Social Benefits,” FfZ/.S-SW-93-025, Procedure for Indexing Personal Monetary Income in 1992,” Y February 1993, p. 18; and “Further Details on Benefits,” FOIS- Rossiiskaia gazefa, 24 December 1991, p. 2 (translated in FXIfS- WV-93-U-75, 9 February 1993, pp. 18-19. USR-92-005, 16 January 1992, pp. 23-24). ’ Not available

64 Social Security Bulletin l Vol. 56, No. 1 l Spring 1993 obligations and securities and carries out in all 15 constituent republics, including when the fruits of the improved benefit other commercial [emphasis added] Russia. This move to encourage comple- formula would be felt by pensioners and activities.“25 mentary contributions to social security children if an efficient administrative Pluralistic approach to income benefits dovetailed with reforms that mechanism could implement the revised security.-The May 1990 U.S.S.R. pen- gave republic and local governments provisions. sion law kept the 1987 provision that more control over their financial Given the centrifugal forces already allowed employees to enter into a con- resources.2~ at play within the Soviet Union by mid- tract with the State Insurance Adminis- 1990, the U.S.S.R. Pension Fund was not tration (through the employer) and join a The Second Phase of Transition: able to collect pension contributions from voluntary supplementary pension pro- Implementing Changes, 1991 its republic counterparts. Republic gov- gram to augment their old-age or disabil- ernments had become more assertive ity pension income.26In addition, an January and December 199 1 marked over their control of fiscal and budgetary unprecedented provision of the new the beginning and the end of the second, policies.28 On the political front, by the pension law allowed republic and local or implementation, phase of the Gorba- end of August 1990, three of the 15 con- authorities, as well as employers, to offer chev social security reforms. This was stituent republics of the Soviet Union supplementary benefits as long as the the period when financing for the re- had declared independence from the costswere paid by their respective bud- structured social programs would be Union (Lithuania, Latvia, and Armenia) gets. The Union pension law was de- dependent on the smooth operation of the and 10 had proclaimed sovereignty signed as basic legislation for application newly established funding mechanism: within the Union. The remaining two republics (Kazakhstan and Kyrgyzstan) followed with their own declaration of Table 1 addendum- sovereignty by the end of October 1990.29 funding for family allowances (1991-92) The rush among republic governments to and monthly supplements (1992), by age of children assert political and financial control within their respective jurisdictions and Family allowance monthly srrppletnenrs, (in current rubles), I992 the Union Government’s continuing February and March, R50; April, R75 for children in age groups (S), (8). control over State enterprises and re- and (9). sources created rather confusing circum- February and March, RlOO; April, R150 for children in age groups (2). (3). stances that caused much uncertainty (4). (6), (7). (lo), and (11). regarding the Union Government’s au- thority to collect tax revenues. Family allowance jiltding The collection of payroll contribu- tions for social security was no excep- In 1991- tion. During 1990 and 199 1, all but the U.S.S.R. Pension Fund paid for benefits to children in age groups (2). three Baltic republic governments (3). (4). and (10). Social Insurance Fund (as part of cash maternity benefit) paid for benefits adopted the 1990 U.S.S.R. State Pension to children in age group (1). Law (some with modest revisions) for Republic budgets paid for benefits to children in age groups (5), (6), their respective social security programs, (7). (8), (9), (11). and (12). and established republic pension funds. However, at least six of the 15 republics In 1992- (including the three Baltic republics, as Russian Federation Pension Fund, none. well as Moldova, Georgia, and Russia) Social Insurance Fund paid for age groups (1), (2), and (3). never forwarded the collected payroll Federation budget paid for age groups (4), (5), (6), (7), (8). (9), (lo), contributions to the U.S.S.R. Pension (1 1). and (12). Fund. Some enterprises claimed to be under the direct jurisdiction of the Union Sources: For monthly supplements, V. Mudrukov, “Compensation Payments to Government and refused to pay their Low-lncomc Persons Ibr Fcbnrxy, March, and April 1992,” T,-red, 13 May 1992, share to republic or local collectors.30As p. 4 (translated in FBIS-L’SR-92-060, Xl May 1992, pp. 23.24), and “Decree on One. of May 1991, the U.S.S.R. Pension Fund time Payments for April 1992 and Social Protection for Certain Sections of the had collected only about 30 percent of Population,” Rar.rii.rkniu gazetu, 9 April 1991, p. ? (transl~tcd in FBIS-C’SR-92-043, I7 April 1992, p. 54). For sources of funding, SW Article 5 of “Rcgrlation of the the projected receipts3’ Contribution U.S.S.R. Pension Fund,” August 1990; “On the Rcfonn 01‘ Retail Prices and the collection could hardly improve in the Social Protection of the Population,” Prcr~,dcl, 2 1 March 1991, pp. l-2 (translated in second half of the year, given the rapidly FB/S-SOV-91-056, 22 March 1991, p. 36); and mimeoymphcd tahlcs from the disintegrating Union authority following Ministry of Social Protection. the failed August coup to overthrow the Gorbachev government.

Social Security Bulletin l Vol. 56, No. 1 l Spring 1993 65 Meanwhile, benefit obligations rose pension law designed to foster the transi- nomic reform characterized by immed- beyond expectations in 199 1 because of tion to a market-based economy. The iate comprehensive price decontrol, tight the introduction of price liberalization social insurance model remains in place. monetary policy, deficit reduction, and that began in April and continued Also unchanged are provisions for ben- enterprise privatization. The year of through the end of the year. The new efit adjustments, the social pension for 1992 witnessed steep price rises of U.S.S.R. pension law already promised the indigent, the system of an indepen- consumer goods of an estimated 2,400 periodic adjustments of the minimum dent pension fund, and the pluralistic percent, and a wage increase of 1,200 old-age pension according to the mini- approach to income security.3’ percent. High inflation was also accom- mum wage, and corresponding Generally, operations of pension panied by a drop in production, reported recomputations of all other benefits programs have continued as before in all to be about 20 percent below the 199 1 based on the revised minimum pension. republics under the ministries of social level of gross national product.33 On the eve of the scheduled price decon- security, disrupted only by financial and How well did the Gorbachev design trol of April 2, 1991, the Gorbachev administrative difficulties of their own. of a social safety net for transition to a government issued a resolution establish- Program administration of the U.S.S.R. market economy hold up under this un- ing the policy of concurrent adjustments pension law had always been under the precedented challenge? To answer this for wages, pensions, and family allow- authority of the republic ministries of question, we may begin by reviewing ances, although not necessarily to the social security and not at the Union level developments in 1992 against the four fullest extent of price increases. (See (no Union ministry of social security was objectives laid down by Soviet reformers. table 1 for the minimum wage and fam- ever established). The funding mecha- ily allowances and table 2 for compari- nism fell upon the newly created republic Minimum Income Security For All sons between the minimum wage and the pension funds. These organizations took minimum pension.) Despite a shortfall in form during 199 1 as part of republic On the eve of the radical economic receipts from enterprise and employee authorities’ efforts in asserting their own reform, laws and regulations had linked contributions, and notwithstanding fi- financial independence from the Union social security benefit amounts with the nancial and administrative problems that Government. The Russian Federation minimum wage. In theory, this linkage led to delays in some payments, social Pension Fund, for example, began to could be a powerful dynamic mechanism security benefits were paid out with the strengthen its revenue collection activi- that upgrades the income security of a help of loans from the U.S.S.R. State ties in late 199 1 and became operational majority of the population according to Bank. by early 1992. wage trends. In practice, there is a down- There is, however, one important side to automatic benefit indexing to the Impact of the Soviet Breakup difference between the Russian Pension full extent of wage or price trends. Given on Social Securitv Fund and its precursor, the U.S.S.R. the current declining production and Pension Fund: While the latter was sub- supply of goods in Russia, at issue is the As the political structure of the So- ordinate to the U.S.S.R. Council of Min- extent to which automatic indexation of viet Union disintegrated in late isters (cabinet), the former is under the pension and allowances would contribute 199 1, the Union-based social security jurisdiction of the Russian Supreme towards fiscal imbalances, and even an system devolved into republic systems Soviet (parliament). In other words, the inflation spiral. The most controversial with rather limited impact. Throughout Russian legislature’s permanent Com- task for policymakers under the circum- the deliberations leading to the 1990 mission on Social Policy controls pen- stances is the search for an appropriate U.S.S.R. StatePensionLaw, the U.S.S.R. sion financing in addition to its legisla- level of a minimum social security ben- State Committee on Labor and Social tive power, while the executive branch efit amount at any given time. While Issues served in many ways as the mas- monitors pension program administra- Russian authorities sought to provide a termind behind the market-oriented tion without any authority over funding. fiscally “affordable” safety net to fami- legislation in the last years of the Under this arrangement, pension funding lies with children and pensioners, trade Gorbachev reforms. Since December and administration are subject to an union groups and social security recipi- 199 1, while the central social institutional tug-of-war between the ents themselves have argued that the cost policymaking authority has shifted from legislature and the executive, the full of living since January has far outpaced the U.S.S.R. State Committee on Labor import of which is just beginning to the scheduled benefit adjustments.34 and Social Issues to republic ministries unfold in 1993 (more on this later). Since January 1992, the Ministry of labor, the 1990 U.S.S.R. State Pension of Labor of the Russian Federation has Law has remained the model for legisla- Developments in the assumed the role of establishing the tion initiated by the 12 republics other subsistence minimum and the minimum Russian Federation, 1992 than the three Baltic States. Some repub- wage. To approximate the level of a lics have set their own minimum wages, Since January 1992, President Boris minimum subsistence living standard pensions, and allowances, but they have Yeltsin and his advisers have embarked under rapidly deteriorating economic kept intact key elements of the U.S.S.R. on a “shock therapy” program of eco- conditions. the Ministry developed a

66 Social Security Bulletin l Vol. 56, No. 1 l Spring 1993 “physiological subsistence minimum” an appropriate level of minimum pen- sion by 2 months. By January 1993, the (PSM), which takes into consideration sion was circuitous and elaborate. Prior Supreme Soviet had settled on its own only the cost of essential food and non- to the collapse of the Soviet Union, formula for benefit adjustment, no longer food items and services.35The min- Russia had promulgated its own pension restrained by the Labor Ministry’s mini- imum wage was adjusted twice in 1992, legislation in November 1990 (effective mum wage. and had instead made the to 342 rubles a month beginning in March I99 l).38 Although this Russian minimum pension a likely standard for January, and to 900 rubles in May; it version followed the May 1990 U.S.S.R. setting the minimum wage. remained unchanged until January 1, model in many respects, it contained two During 1992, the minimum pension 1993, when it rose to 2,250 rubles a notable revisions. First. it raised the level was also ‘affected by Presidential decrees, month.36 (A comparison of minimum of guaranteed minimum pension income granting ad hoc, flat-rate supplements to wagesand average wages in 1992 for old age from 70 rubles a month under all pension recipients at 200 rubles a indicates that the minimum wage fell the U.S.S.R. program to 100 rubles a month for February and March, 300 far behind average wage growth; see month. There were also corresponding rubles a month for April, and 420 rubles table 2.) increases for minimum benefits for dis- a month for August through October Throughout 1992, the Supreme ability, for orphans, and for the newly 1992. These supplements brought pen- Soviet amended social security laws and created “social pension” for those eld- sion benefits somewhat closer to, but regulations and the President issued erly and disabled who did not qualify still lower than, the PSM estimated by decreesas they took steps to adjust social for the work-related “labor pension,” the Labor Ministry. According to the security benefits. On the whole, these Second, the minimum pension was to Ministry’s calculations in July, the mini- benefit amounts were linked closely to be adjusted yearly according to an esti- mum pension benefits during the first minimum wage levels although they mated level of “minimum subsistence” 6 months were no more than 40 percent trailed behind the minimum subsistence established by the Russian Supreme of PSMs.4’ level. Soviet, not to the minimum wage as The July estimates of PSMs devel- Family ullowunces.-On the eve stipulated by the Union pension law.)” oped by the Labor Ministry have been of the January 1992 price decontrols, Both measuresapparently took into con- criticized for having allowed food pro- Russian President Boris Yeltsin issued sideration the extensive poverty among tein consumption (74 grams, including a decree reaffirming the link between pensioners and the need to adjust pen- 29 grams of animal protein) to exceed family allowances and the minimum sion benefits to offset price increases to amounts recommended by the World wage, as established in the Soviet regula- maintain a minimum standard of living. Health Organization (WHO) and Food tions earlier (table 1). During 1992, the With significant price increases antici- and Agriculture Organization (FAO). A Supreme Soviet raised family benefits pated from January 1992 onward, the revised version of the minimum subsis- three times (on January 2, June 1, and Russian Supreme Soviet superseded the tence has since been developed according December 2) following minimum wage 1990 provision for annual adjustments in to international standards of food intake changes in January and May, and a accordance with the “cost of living,” that is necessary to meet daily energy minimum pension change in November. and instead linked the minimum pension requirements for the pensionable age In addition, a Presidential decree allowed to the minimum wage, no matter how population (men aged 60 or older, and retroactive flat-rate supplements for frequent or rare the revaluation. women aged 55 or older). Still, the mini- different types of family allowances in In practice, the adjustment of the mum old-age pension trailed behind the February and March, and again in April minimum pension was set according revised subsistence minimum level dur- (table 1 addendum). The June adjust- to the minimum wage only during the ing most of 1992 (table 2). ment lagged behind the minimum wage first 3 quarters of 1992, specifically, at Pensioners who depended 011 social change by a month (although the Decem- 342 rubles in January and 900 rubles in security benefits for their daily suste- ber adjustment preceded the minimum May. The link with the minimum wage nance faced further hardship because of wage change by 1 month); there were was ignored in October when the Rus- prolonged delays in payments of the no flat-rate supplements from June to sian Supreme Soviet decreed an increase adjusted amount or nonpayments of December. The December increase also of the minimum pension by 150 percent, pensions altogether. A host of adminis- fell short of pension benefit adjustments; from 900 rubles to 2,250 rubles a month trative and funding difficulties contrib- the amount of family allowances in- (taking effect November 1, 1992) and uted to these problems in 1992. First, the creased only by 100 percent, while the raised it again by 90 percent to 4,275 tight fiscal policy in the spring of 1992 minimum pension was raised by 150 rubles, effective February 1, 1993. The brought about a credit crunch and a cash percent in November. Starting in Febru- Ministry of Labor followed by raising the shortage that extended into summer, so ary 1993, the minimum pension was minimum wage to 2.250 rubles to equal that pension and wage payments report- again increased by 90 percent; family the newly adjusted November level of the edly were sometimes delayed.42 benefits, however, were increased by minimum pension, but not to begin until In addition, there has been a persis- only 25 percent.37 January 1, 1993. 4o The minimum wage tent lag in pension payments because of a Pension benefits.-The search for level lagged behind the minimum pen- lack of coordination between the Su-

Social Security Bulletin l Vol. 56, No. 1 l Spring 1993 67 preme Soviet (the lawmaker) and the the U.S.S.R. pension law had raised the coefficients for indexing past wages in Ministry of Social Protection (the pro- maximum pension benefit from 2.5 to April, effective May 1, 1992.45 The gram implementer). The former legis- 5.2 times the minimum pension in order Supreme Soviet, however, was concern- lates and decrees changes without giving to better reward higher earners. It also ed with the overall pension costs, as it advance notice to the latter, and gener- required that benefits would be calcu- vacillated over the pension ceiling. The ally has allowed no more than 2 weeks lated from the highest average earnings April amendment lowered the maximum lead time to prepare for recalculation of of five consecutive years within the last benefit from three times (3.5 for hazard- benefits for payment. All adjustments in 15 years of continuing covered employ- ous occupations) to two times (2.5 for the minimum pension, computations of ment, thus replacing the provision of hazardous occupations) the minimum coefficients for past earnings, and subse- computing benefits according to the last benefit, citing the need for economic quent upgrades of these coefficients 12 months’ earnings before retirement. stabilization.46 By October 1992, the require recalculation of benefits. In addi- The November 1990 Russian law low- Supreme Soviet had repealed this tion, working pensioners may request ered the maximum pension benefit to amendment and raised the benefit ceiling recomputation of benefits if their more three times the minimum pension; it again to three times the minimum ben- recent earnings could yield higher ben- then allowed workers the option of hav- efit, thus reinstating the November 1990 efits. At present, benefit computations ing benefits computed either from the position. are carried out manually and are labor average wage during the last 24 months The April 1992 amendment further intensive and time consuming.43 Auto- before retirement, or from any 60 succes- stipulated that, from 1993 on, pensioners mation of social security computations sive months of work during their entire can request that their benefits be calcu- reportedly is under way. The lengthy and working life before applying for pension lated from wages over the preceding labor intensive process may be gradually benefits.44 12 months. This provision is a tempo- eased in the not too distant future. During the first 4 months of 1992, rary measure and applies only to earn- the problem of pension leveling oc- ings during the 2-year period beginning curred. Because past wages used for with January 1, 1992, ending December A ModiJied Social Contract computing benefits were not indexed 3 1, 1993. This move in effect negated Even before the onset of radical while the minimum pension was raised (albeit temporarily) the Gorbachev economic reform in 1992, the November to partially offset price decontrols, a social contract by reverting back to the 1990 Russian pension law modified the great majority of pensioners became pre-Gorbachev benefit formula that gave May 1990 U.S.S.R. benefit formula in its entitled to the same minimum pension full weight to earnings in the last year “incentive” structure designed to en- amount. To counter this problem, the before retirement as the basis for benefit courage productive labor. For example, Supreme Soviet developed a series of computation.

Table 2.-Monthly pension and wage comparisons, 1991-92

IIll culTcllt rublcsl

Russian Fedcwtion U.S.S.R. IkIll Jimuw~ IYY I January 1992 Augusl 1992 Oc~obcr 1992 Minimum old-age pension. ’ 70 ?’ 342 ” 1,320 1,320 Minimum wage,. 70 ’ 342 5 900 5 900 Minimum subsistence. ,...,_...,_.._...... 6 l8 478.5 8 1.410.3 8 2,062 Avzragz pension (all pensionus). . 9 113.2 y 419.3 5 2,000 ” 3,600 Awragr: wagz (all sec101.s). ” 274.6 5 1,438 5 5,876 I2 8,553

I “Privileges of EVCI->one,” Argranrr~ly if&y, December 1990, Fcdsralion.” Augusl 1992, and October 1992 updale. The minimum pp. 2-3. subsislznce level is developed based on nacessary food intake to meel ’ Minimum pznsion thr February was R342; R200 supplzmcnl for the daily energy requirzmcnts recommended by the World Health February paid relroacliwly in May 1992. Organization and Food and Agriculture Organization for pensioners ’ A. Shuvcv, “The Pension is Payment or a D&I,” Tovgolaicl (men agtid 60 or older and womzn aged 55 or older). The consumption gazem. I January 1992, p. I baskd assumes that 80 percent of the income is for food. ’ Minimum pension Ibl- Augsl. RYOO; monthly supplemenl. R420. ’ Sosroiunie solsial ‘noi .whcirity ~lel,~rdosposobr~,ykh gmzhdan i sernci ’ Sanjeev Gupla, “Russian Fzdaxtion-Social Sector Mission Back-lo- s dcr ini I’ Rossiiskoi Federalsii (Sbomik s~atic~icltcskikl~ mate~ialov), Office Report,” Oclobzr 1992, pp. 1-3. Amounts for average monlhlj chiw’t. Moscow, 1992, p. 35. pension and avaragc monthl) wages wcrc cslimalzs. Mr. Gupla is an I” Ministv of Social Proleclion preliminary estimate. economist al thz International Monewy Fund. ” 1990 data. See Nadnor kitozioish,o SSSR v 195X&, p 38. 6 Nol available. I’ Derived from Gupta (see foolnotl: 5) and Sheila Marni, ’ Estimate for February 1992. “Economic Reform and Poverty in Russia,” RIZIRL. Research Report, * Barly Popkin, Marina Mozhina, and Alexander Baturin, “The 5 February 1993, pp. 31-36. Development of a Subsislencc Income: Level in the Russian

68 Social Security Bulletin l Vol. 56, No. 1 l Spring 1993 The Social Insurance Model ante principle of pension program I?- time they help protect private savings nancing. from inflation. In view of the tendency The Soviet social insurance model The social insurance model will among regional governments to move for the pension program survived the be further strengthened by the Russian toward greater independence from the initial challenge of radical economic Pension Fund’s plan to establish indi- center, capital accumulation is becoming reform of 1992, and has become all vidual records for employees contribu- decentralized and fragmented. Propo- the stronger under the Russian Federa- tions, scheduled to start in 1993.50 nents of the non-State pension funds tion. On the program funding side, the suggest that these funds serve as an in- centrifugal forces that plagued the strument whereby neighboring prov- Pluralistic Developments Gorbachev government at the Union inces, for example, can pool their funds level also undermined the Russian The Russian Federation continues to invest in joint projects of infrastruc- Federation’s ability to collect tax rev- the pluralistic approach to income secu- ture investment that are otherwise not enuesfrom its constituent republics and rity adopted by the U.S.S.R. in 1990 in affordable for individual provinces, regions in early 1992. Some local gov- three respects. One report claims the existence of ernments decided not to pass on tax Supplementary pension benefits.- hundreds of insurance companies in revenues (presumably including social The 1990 Russian Federation Pension Russia today, and estimates that a mini- security contributions) in retaliation for Law followed the Soviet model in allow- mum of several hundred thousand em- the Central Government’s failure to ing republic and local authorities, as well ployees are already enrolled in various provide them with payments of wages as employers, to offer supplementary private pension planss3 and pensions.47 benefits as they deemed appropriate, and Regardless of the contents of the However, this problem has been to bear the costs thereof. Some regions final legislative proposal for the supple- largely overcome, thanks to the system- and cities have decreed their own mini- mentary pension program, implementa- atic organizational efforts by the Russian mum pensions above the minimum stipu- tion of the new proposal faces formidable Federation’s Pension Fund since lated by the Central Government. How- obstacles. The lack of a mature insurance September 199 1. The Russian Pension ever, data indicating the extent of such industry and a stable financial market Fund has since extended its network in practices are not available. in present-day Russia does not augur all 88 provinces (oblasts, krais, or con- Voluntary non-State pension well for private pension investments. A stituent republics) and over 2,000 coun- program.-The Russian Government crucial element in the plan’s appeal for ties (raions) to collect payroll taxes from also endorses the introduction of a capital depends on the extent to which enterprises by its own collection agents. voluntary pension program to supple- these private pension plans can guaran- By late 1992, this organization had ment the State-operated pension system. tee benefit indexing to protect the bene- established stringent regulations for Instead of having employees enter into ficiaries from the highly inflationary late payments and for delinquent enter- contract with the State Insurance Admin- economy in Russia today. Western expe- prises. Partly due to efficient tax collec- istration and join a voluntary pension rience with private pensions does not tion, and partly because average wage program as prescribed by the May 1990 provide optimism regarding inflation increases have surpassed average pen- U.S.S.R. pension law, the Russian Fed- protection, however.54 sions throughout 1992, the Russian Pen- eration established a new Non-State Local government and civil initia- sion Fund has accumulated substantial Pension Fund in May 1991 as the spon- tives in social assistance.- As a result reserves.It is generally estimated that sor and promoter of non-State pension of the decentralization in Russia’s politi- the surplus equals at least 7 percent of plans. An interministerial commission- cal and financial systems, many local payroll contributions.48 consisting of representatives from the governments and civic associations are Another contributing factor to the Ministries of Social Protection, Labor, organizing assistanceto help meet the robust financial health of the Russian Finance, Economics, and Law and the many needs left unfilled by the Russian Pension Fund may be that it has freed State Committee for the Management of State-operated social security system. itself from some of the prior funding State Property-is drafting a legislative l Local government programs.-The obligations for nonwork-related benefits: proposal to regulate the establishment phenomenon of local government public Social pensions, special compensations and operation of individual non-State assistance programs to aid the needy is for victims of the Chernobyl nuclear pension funds.51 significant in two respects, It highlights power plant disaster, and family allow- The Russian Government envisions a departure from the central planning ances These benefit payments are now that these supplementary pension pro- mode of governance, and it testifies to reimbursed by general revenues and grams will enhance retirement income local initiatives in public affairs. Such other sources.49Efforts at limiting pen- and generate investment capital for eco- activities have greatly expanded since sion expenditures to benefit payments to nomic development as we11.52These January 1992 to meet rapidly increasing contributing employees for insured risks funds are expected to absorb and pool demands as minimum pensions and have allowed the Russian Pension Fund private savings for medium- and long- wages fell below the level of minimum to move closer toward the social insur- term investments, while at the same subsistence. Although there is no aggre-

Social SecurityBulletin l Vol. 56, No. 1 l Spring 1993 69 gate data to assessthe distribution of unpredictable and cash benefits devalue Miloserdie (Mercy) and the Nadezhda such efforts nationwide, available infor- quickly. Programs for food stamps, meal (Hope) Association, which have the mation suggests that these programs are coupons at soup kitchens, and free meals support of physicians, lawyers, ecolo- common, and play an important role in for school children are common. Cash gists, journalists, and entrepreneurs to alleviating current hardship.55 grants are sometimes available for spe- provide for the vulnerable of any back- These programs may benefit all cific purposes (burial, partial compensa- ground. Religious organizations, includ- local residents by subsidizing producers tion for heat and water, and medical care ing the Russian Orthodox Church, the and/or retailers of staples (bread, milk) of poor pregnant women), or for general Methodists, Baptists, Lutherans, and to keep prices low, and by granting free expenses of certain groups identified as Seventh-Day Adventists, have taken on plots to all residents who wish to grow in need of emergency assistance. In charitable causesand often render aid to vegetables. They may extend eligibility Cheliabinsk province, of the 26,775.4 the indigent who are not necessarily their to broad categories of vulnerable groups million rubles budgeted for benefits to parishioners. By January 1992, two laws by granting all pensioners accessto dis- the needy in 1993, only 3 percent will be were passed that formalized the authority count stores and to free or subsidized for cash allowances; 27 percent were to organize charitable activities adminis- transportation; they may target the poor- allocated to in-kind benefits, and 70 tered by religious orders (1990) and civic est as recipients of free or subsidized percent for discounts, cash compensa- groups (1991).58 soup kitchens and meal coupons; or they tions, and subsidies (including 17,338 Throughout 1992, an increasing may meet individual needs by awarding million rubles in bread subsidies). In- number of Russian citizens participated house-bound single elderly and disabled kind and cash benefits per month per in voluntary organizations, spurred on with free or subsidized telephones, or by recipient vary over time and across re- by the rising demand for charity. providing low-income families that have gions according to need and available Civic groups (advocacy organizations three or more children with discounted resources. In Novosibirsk province in for women, veterans, and the disabled, as fuel, water, and/or electricity. September 1992, it is estimated that well as community activists) also sprang Typically, these local programs about 32 percent of all pensioners re- up with the infusion of resources made share two common features. They ceived some public assistance equivalent available through foreign aid packages (1) often require an income test to iden- to an average of 2 13 rubles per person and financial and/or administrative sup- tify the neediest amidst the general vul- per month; of the families with three port of central and local governments. nerable groups and (2) offer far more in- children or more receiving assistance, Some of these organizations assisted kind benefits than cash benefits. each child received benefits equivalent to international humanitarian aid efforts Since early 1992, the Central Gov- an average of 166 rubles per month.5h and/or local programs by compiling and ernment has identified the needy by l Charitable and civic initiatives.- screening lists of needy groups; some category (for example, large families Charitable activities reemerged in the engaged in monitoring the distribution and those who live alone with no other Soviet Union in the late 1980’s, of international aid shipments to prevent means of support, whether they are eld- in the form of quasi-government organi- pilfering for profit; and others organized erly or disabled). To meet rapidly grow- zations after a seven-decade absence: concerts, dances, lotteries, auctions, and ing demands for assistance, many local The Children’s Fund, and the Soviet marathon television programs to raise governments are using a combination of Fund for Health and Charity were estab- funds for the needy. International philan- criteria, such as category (for example, lished in 1987 and 1988, respectively. thropic organizations, including the pensioners) and income level (for ex- Each was described as a “self-governing International Salvation Army, United ample, minimum pension or below) to public agency” that worked closely with Way International, the Protestant target the broad categories of vulnerable government institutions. These organiza- Chaplaincy, and others, have established groups and to effectively utilize limited tions quickly extended to republic, pro- branches in Russia, generally concen- resources. For example, in Cheliabinsk vincial, and county levels, and they re- trated in Moscow and St. Petersburg, and province in the Ural mountains, eligibil- main active in Russia today.” From the work closely with local voluntary groups ity for social assistance is limited to late 1980’s to January 1992, many other and government agencies. By the end of those whose income is below the mini- private voluntary organizations, includ- 1992, more and more Russian citizens mum pension; in Novosibirsk province, ing some affiliated with churches, have have begun to volunteer at soup kitchens to those whose income is below a locally appeared to provide assistance to the and other organized welfare facilities.59 established subsistence minimum; and in needy. Some serve specific objectives, A commonly cited reason for the Barnaul city in Altai province, to low- such as the Memorial Society that began relative underdevelopment of charitable income families with children and those as a mutual support group for former activities in Russia today is that the earning less than two times the mini- political prisoners and has since taken current law does not offer favorable tax mum wage. on the function of collecting contribu- treatment for nonprofit civic organiza- In-kind benefits are expanding in tions and providing assistanceto former tions and private philanthropic dona- an environment where the market prisoners and their family members. tions. At present, only a specified availability of food items tends to be Some have broad constituencies such as number of charitable and welfare organ-

70 Social Security Bulletin l Vol. 56, No. 1 l Spring 1993 izations (Fund for Health and Charity, Three issues, however, remain: Ben- pension changes during most of 1992. homesfor the elderly and the disabled, efit adequacy, pension program adminis- Pension benefits at all levels above the for example) are tax exempt. Reportedly, tration and fund management, and the minimum pension are thus guaranteed the Supreme Soviet is drafting a law role of the Central Government regard- better protection from price changes than granting tax deductions for private con- ing local public assistance programs. before. tributions to charities and tax exemptions The new automatic quarterly reval- for nonprofit organizations in general.60 uation of pension benefits, together with Benefit Adequacy and To be sure, there have been allega- benefit enhancement for the average and Fiscal Responsibility tions of mismanagement and/or fraud high-earning pensioners through earn- with regard to the distribution of foreign The most immediate issue domina- ings indexation. have alarmed those who aid packages at all levels of operation, ting policy debates between the Supreme are concerned about the impact of im- ranging from the Central Government to Soviet and Government ministries relates proved benefit adjustments on a mount- city and county nongovernment groups. to the appropriate level of pension and ing inflation. From the fourth quarter of The extent of proven mismanagement family benefits necessary to guarantee 1992 through January 1993, monthly and fraud remains unknown, however.61 minimum income security. The question inflation climbed from 25-30 percent to Inadequate information and data that remains is, on the one hand, the 50 percent. The Minister of Finance, make it difficult to conduct a systematic extent to which benefits are helping especially, argued against an automatic study of the contributions of local gov- pensioners and families with children to quarterly adjustment for all pension ernments and nongovernment organiza- cope with the ever worsening inflation benefits. He maintains that the quarterly tions to the economic security of the and, on the other hand, the extent to adjustment of the minimum pension needy. It is significant that press reports which better benefit protection against tends to drive the minimum wage up to about such activities seem to suggest that inflation would create a significant the same level,62 thus increasing Govern- they are common occurrences. Neverthe- fiscal imbalance and further economic ment expenditures for State-sector wages less,the fledgling nongovernment instability, and enlarging the budgetary deficit as organizations still have to face the test Evidence suggests that minimum well. He also prefers to revalue benefits of time to answer questions about how pensions and family allowances fell above the minimum level with reduced stabletheir programs are and how effec- behind the minimum subsistence stan- coefficients to better control total pen- tive they can be in serving as supplemen- dard of living throughout 1992 in Russia sion expenditures. Moreover, the infu- tary sources of income security for the (table 2). Government ministries’ mea- sion of large sums of money into the mostvulnerable. sures in 1992 relied on flat-rate supple- hands of pensioners and wage earners in ments to provide afroor of minimum an economy where the availability of income for social security beneficiaries goods is on a decline due to a continuing Remaining Issues regardless of their past earnings. The fall in domestic production may indeed In Russia. as of spring 1993, Supreme Soviet, however, has taken trigger a wage-price spiral with only income-maintenance programs for the steps to raise benefits above the mini- limited real advantage to the public.63 aged and children appear to have sur- mum pension by improving the income The Minister of Labor has since entered vived the breakup of the Soviet Union of pensioners with average to high the debate by deploring the low standard and the “shock therapy” of economic earnings. It began by introducing a of living of average Russian citizens reform in 1992. State-operated programs series of coefficients to index past (pensioners included) and asserting that of pension benefits and family allow- earnings in May 1992; raising the ceil- it is a potential cause of political instabil- ancescontinue to make payments due ing of maximum benefits from two to ity. He claims that “the possibility of to the successful conversion of pension three times the minimum benefit in achieving financial stabilization by funding from general revenues to em- November 1992; and stipulating that limiting people’s incomes has been ployer and employee payroll contribu- new retirees may apply their earnings exhausted, and a further decline in liv- tions, and to the diligence of the Min- over the preceding 12 months (instead ing standards runs the risk of causing a istry of Social Protection, as well as of a 2-year period) to compute benefits, social explosion.“64 provincial and county social protection starting in January 1993. More recently. The eventual impact of the improved departments. In addition, the Govern- in November 1992 and again in February benefit adjustments on budget deficits is ment continues to promote pluralistic and May 1993, the Supreme Soviet de- yet to be assessed.65It is possible that the approachesto social security by delegat- parted from the past practice of linking Supreme Soviet may still revise the for- ing social welfare responsibilities to the minimum pension to the minimum mula for benefit adjustment, as it is wont local governments, by establishing wage and adjusted it according to its own to do, over time. The extent to which private pension schemesas supplemen- estimate of “cost-of-living” increases. It quarterly adjustments may bring better tary retirement income for seniors, and also set a time table for quarterly benefit living standards to pensioners and low by fostering civic and philanthropic revaluation, instead of the ad hoc adjust- wage earners (given the current limited activities. ments that characterized the minimum supply of goods), and the extent to which

Social SecurityBulletin l Vol. 56, No. 1 l Spring 1993 71 such adjustments would cause further banks). Provincial and county social operation all the responsibilities cur- inflation and fiscal imbalance, will un- protection departments are directly sub- rently carried out by the Ministry of doubtedly be subjects of inquiry in future ordinate to the respective local adminis- Social Protection and provincial and studies.66To policymakers, the linkage trators, and indirectly to the Ministry county social protection departments. between benefit and wage levels, the of Social Protection in Moscow. Parallel The Commission’s proposal in effect national economy, and political stabil- to the executive arm is the Supreme places both the administrative and fund- ity is very real, while the resolution in Soviet’s Commission on Social Policy ing operation of the pension program achieving a balance between the eco- and its affiliate Russian Federation under the legislative authority, separate nomic welfare of pensioners and the Pension Fund. The latter collects payroll from the executive branch. It creates two country’s economic and political well- contributions, appropriates payments issues that relate directly to the delinea- being remains elusive. As the search through its provincial and county tion between legislative and executive continues for an appropriate level of counterparts, and manages cumulative branches of government. First, to what minimum income security for Russia’s receipts.67 extent should the executive function of poor, the cost of a misstep could be The two parallel institutions interact the government (that is, pension pro- inordinately high. at both federal and provincial levels. At gram administration) be incorporated the federal level, the Supreme Soviet’s into the legislative structure. Second, how could adequate oversight be estab- Pension Program Administration Commission on Social Policy legislates lished over the operation of the pension and Fund Management pension policies that require implemen- tation by the Ministry of Social Protec- program under the Supreme Soviet. Administration.-Since Russia is tion and provincial and county social The Ministry of Social Protection currently experiencing runaway inflation protection departments. At the provincial proposes the unification of pension fund- at 25-50 percent per month, any delays level, the social protection department ing and administration into a new, inde- in pension payment cause added hard- notifies its counterpart pension fund each pendent Federal Pension Administration ship for Russian seniors. Both the month of projected pension expenditures under the executive branch of the gov- Supreme Soviet’s Commission on so that the latter transfers the estimated ernment. The Supreme Soviet will con- Social Policy and the Ministry of Social amount to the social protection depart- tinue to exercise its legislative authority Protection point to the largely manual ment for payment to beneficiaries. At of pension law and oversight of the new operation of benefit adjudication and both levels, one branch of govermnent pension administration. A largely trim- computation as a major cause of the carries out its function separately and med Ministry of Social Protection will extended time required for processing independently from the other with mini- focus on its responsibility for family pension payments; both regard it as mal communication or coordination allowance programs and other social necessaryto automate these processes. between them. The Commission, for assistanceprograms. They also recommend a restructuring of example, does not deem it necessaryto The Ministry further proposes that social security institutions to streamline discuss or inform the Ministry of Social the Federal Pension Administration be program administration. Protection in advance of its plans to established along the “federative” Under the current arrangement, revise the benefit formula or the coeffi- principle of the Russian Government. governance of the pension program is cient for benefit adjustments.68Typically, At each level of the government (fed- shared between the legislative and exec- there is no sharing of information or data eral, republic, provincial to county) the utive branches of the Russian Federation. between the provincial pension fund and Federal Pension Administration would Institutionally, the cluster of Ministries social protection department other than integrate all functions regarding the of Social Protection, Labor, Finance, monthly projections of benefit payments pension administration (from the collec- and the Economics report to the Russian and transactions of the said amounts tion of payroll contributions to payment President. These ministries coordinate through transfers in their respective of benefits) into one. According to the pension policy in the context of social savings bank accounts. Ministry‘s proposal, all regions will needs, minimum subsistence, fiscal Both the Supreme Soviet’s Commis- adopt the “federal norm” for minimum policy, and economic reform. The sion on Social Policy and the Ministry of contribution rates by employers and Ministry of Social Protection is also Social Protection regard this institutional employees, while regional pension serv- responsible for program implementation arrangement as inefftcient and costly; ices have the right to levy a higher rate. through a network of social protection both favor a merger of pension fund In matters of pension fund collection and departments at the provincial and county collection with benefit adjudication and disbursement, the new pension agency levels. Specifically, these provincial and payments. They differ, however, on the and its constituent services will depart county offices review applications for jurisdiction of this new, unified adminis- from the present centralized structure of benefits, adjudicate applications, com- trative structure. To the Commission, the the Russian Federation Pension Fund pute benefits, and pay benefits mostly Russian Pension Fund system that so and assume a coordinating role for con- through the local post office (and occa- successfully collects payroll contributions stituent republic and provincial pension sionally, through the network of savings can conveniently incorporate into its administrations: it will provide redistri-

72 Social Security Bulletin l Vol. 56, No. 1 l Spring 1993 bution of collected contributions (accord- plan for the Russian Pension Fund to ever, in the sphere of public assistance, a ing to a pre-established formula) to help establish a network of commercial banks relatively new endeavor with limited finance provinces that have a deficit throughout Russia that would extend precedents, the Central Government in between contributlbns and benefits. from its Moscow center to republic, pro- Russia has thus far delegated most of the The Ministry of Social Protection’s vincial and county levels. As part of the responsibility to local authorities. The proposal. therefore, reclaims the Russian Commission’s proposal to effectively stance of decentralization persisted even Pension Fund for the executive branch. collect payroll contributions and manage after the Ministry of Social Protection This arrangement, however, does not pension receipts, the Russian Pension was reorganized in late 1991 from its provide any mechanism to ensure coordi- Fund will have control over this com- predecessor, the Ministry of Social nation of legislation and program imple- mercial banking system by holding 5 1 Security. The new ministry’s mandate mentation. and communication between percent of its assets.According to the has since expanded beyond the protec- the Commission on Social Policy and the Commission, the Russian Pension Fund tion of pensioners to that of all vulner- new agency. It nevertheless decentralizes can capitalize fund reserves through able groups. In practice, the Ministry’s the pension program so that legislative commercial banking activity. and it can transition to its newly expanded role is and executive authorities competing over expedite fund collection by mandating slow, and officials thus far have reported social security matters will be replicated enterprise payment of payroll contribu- no plans to take the lead in developing at the republic and provincial levels, thus tions through direct deposits to the Rus- comprehensive policy directives regard- causing the governance of the pension sian Pension Fund’s banking system. ing public assistance. There are no plans program to become further fragmented. This arrangement replaces the current to design a national guideline for local The final outcome of these proposals circuitous route of having the local com- implementation of social welfare pro- is likely to depend on the resolution of mercial bank transfer enterprise contri- grams, to provide technical know-how the larger issue of governance in Russia butions to the county pension fund’s for establishing strategies (means-test or with regard to the relationship between account in the local savings bank, which otherwise) in targeting the needy or in its legislative and executive branches. subsequently transfers the monies to the developing programs for the emerging Considering the unstable and ambiguous provincial pension fund’s account in the poor, and there are no proposals to help relationship that currently exists between provincial savings bank. The Commis- local governments to shore up unstable these two branches of Government, sion of Social Policy, in short, plans to funding or to pool resources available for and the palpable tension between the transform the Russian Pension Fund public assistance.‘O center and the periphery in Russia, a from its current primary function of a To the extent that local governments fragmented pension system would prob- contribution collection agency to a full- provided pensioners and children with ably undermine prospects of risk pooling fledged administrative organization for cash and in-kind benefits to ease their in pension financing and portability in the country’s pension program, coupled hardship during 1992, and to the extent benefit payments among regions. with a mandate to also perform the func- that such assistance will continue to Fund management.-There remain tion of a commercial banking system. If be necessary for the most vulnerable, two areas of concern with regard to pen- carried out, the Russian Pension Fund the absence of Central Government sion fund management. First. potential will be moving the program into com- leadership may hurt most those regions or real instances of misuse of pension mercial spheres that Western govern- that lack resources and energetic fund receipts are surfacing. A recent ments have not previously attempted to administrators. .!4oscowNews report, for example, enter. At present, local governments rely alleged that the Russian Federation on four sources of extra-budgetary funds Pension Fund was using payroll contri- for social assistance: The Supreme Soviet Central Government Role butions to subsidize the publication of Fund for Social Protection, the Ministry in Local Assistance Programs “Official Chronicle” by the Moscow of Social Protection’s Fund for Social Patriarchate of the Russian Orthodox Since the Gorbachev reform, the Protection, and provincial and county Church.@Such practices of diverting Soviet Government and, more recently, governments’ own funds for social pro- monies earmarked for benefit payments the Government of the Russian Federa- tection7’ The establishment of extra- to purposes unrelated to the pension tion have taken the policy of decentrali- budgetary funds has become increasingly program or to any other income security zation as a “corrective” measure to common since 1990 as a tool to generate programs, if proven to be true, directly counteract the centrally planned econ- additional sources of funding for social violate the “social insurance model” of omy and governance that had prevailed assistance. These funds represent an pension funding and undermine the up to that time. In areas of pension obvious departure from central planning average citizen’s confidence in the finan- policy and family allowances where the for social welfare, and they are generally cial integrity of the public pension pro- Central Government already had estab- regarded by Russian reformers as a flex- gram. lished programs, it continues to assume ible tool suited for a market economy. The second area of concern relates the lead in policymaking, payroll collec- Their sources of funding, however, are to the Commission of Social Policy’s tion, and program implementation. How- limited and they are too unstable for

Social Security Bulletin l Vol. 56, No. 1 l Spring 1993 73 local governments to fund recurring food shortages, or a sharp decline in the protection from inflation. Also, the expenses such as public assistance to the production of military and heavy indus- Russian Federation has successfully needy. trial goods: and areas with a large inflow transformed pension program funding Social Protection Funds from the of migrants and refugees). In reality, the from primarily general revenue financ- Supreme Soviet and the Ministry serve distribution of resourceswas generally ing of the Soviet pension program to a as federal resources for local public based on requests from locales; the social insurance model. The Ministry of assistanceprograms. However, little is Ministry has not conducted independent Social Protection and provincial and known about the source or the financial assessmentsof need across regions. county social protection departments status of the Supreme Soviet Fund for Locales that do not request aid may turn carried out program operations with Social Protection. It is distributed to and out to be the ones that federal technical limited administrative resources against then disbursed by provincial and county and/or financial assistance could help great odds. legislative councils (independently, the most, according to at least one Pensioners and children may fare or through the local social protection observer.7’ better in 1993 than previously because of departments, depending on the work- Central Government leadership in modifications in the Gorbachev social ing relationship between local legisla- helping local govermnents to organize contract and the recent adoption of a tive councils and governments). The their work and resources to meet public quarterly revaluation of pension benefits Supreme Soviet’s criteria for allocation assistance needs is important, especially and subsequent upgrade of family ben- of its Social Protection Fund across in view of the expected mass bankrupt- efits as well. Finally, the pluralistic ap- regions are not generally known.‘* cies of State enterprises in 1993 and proach to income security has begun to The Ministry’s Fund for Social beyond.74 bear fruit, as local governments have Protection has been an important finan- initiated public assistance to aid the cial source for local programs. It consists Concluding Remarks indigent, and as Russian citizens have primarily of monies transferred from the begun to organize and volunteer in civic now defunct Communist Party, proceeds Social security in the Soviet Union associations for causesof philanthropy. from privatization of State enterprises, and in the Russian Federation takes on a Three issues remain. First, will the enterprise tax on income from price multi-dimensional significance during improved benefit adjustment against increases, special levies on enterprises. economic transition. The Gorbachev inflation continue without modification private donations, and receipts from social security reforms were intended and, if so, to what extent may the in- sales of foreign humanitarian aid. In to (1) alleviate apprehension about crease in benefits undermine economic addition, where provincial and county economic reforms by providing protec- stability. Second, how will the institu- governments have created their own tion of minimum income security during tional restructuring evolve in pension social protection funds, these funds also the transition period; (2) revitalize the administration, and how will vigilance depended on the same sources (privati- Soviet work force by introducing incen- against misuse of the collected funds be zation proceeds, enterprise taxes and tives for longer service and higher pay; exercised. Finally, given the lack of levies, for example) of support at the (3) instill in employees a senseof re- experience of local administrators in local level, plus allocations from the sponsibility for their own economic secu- public assistance, and given the uneven Ministry’s Social Protection Fund. While rity by adopting the Western market- and unstable financial resourcesavail- proceeds from the privatization of State based social insurance model for social able across regions, will local govern- enterprises will continue as long as the security financing, and by offering vol- ments be able to meet ever-increasing process lasts, most other sources of in- untary supplementary pension plans; demands in 1993 and beyond. come are one-time injections. This ele- and (4) foster a pluralistic approach to As President Boris Yeltsin and the ment of instability for future resources economic security by allowing local Supreme Soviet consider whether or not has prompted many provincial and government add-ons to the Union-based to press for a deepening of the radical county governments to invest their initial benefits, and by encouraging local gov- economic reform plan in early 1993, capital in presumably profitmaking ernments and nongovernment groups to their decision may very well depend on endeavors in order to expand their re- take part in public assistance and charity. the extent to which continuing reform sources, or at least to maintain the real The Gorbachev design of social may bring further hardship for the popu- value of the unused funds, even though security for transition to a market-based lation, and the extent to which the State- the prospects of such endeavors remain economy has withstood the political operated social security and other gov- uncertain. breakup of the Soviet Union and the ernment and nongovernment programs The Ministry of Social Protection radical economic reform subsequently can be a stabilizing force. Regardless of claims that allocations of its Social introduced by the Russian Federation. their decision on the course of economic Protection Fund to local funds are di- Under conditions of radical and compre- reform, income security issues will con- rected, first and foremost, to the “emer- hensive price and wage decontrol in tinue to be a crucial consideration in the gency counties” (regions suffering from 1992, social security benefits were paid, Government’s economic and political ecological disasters, ethnic conflicts, albeit marred by delays and inadequate agenda.

74 Social Security Bulletin l Vol. 56, No. I l Spring 1993 Notes natrudosposobn.vkh grazhdan i semei of pension. See, Social Security Programs s det’mi v Rossiiskoi Federatsii (Sbornik Throughout the World, 1983, pp. 262-263. Acknowledgments: The author is statisticheskikh materialov) Moscow, 1992, 9 As an alternative, pensioners could indebted to the Institute of Inter- chast’ II, p. 45. national and Area Studies, University choose to compute their benefits from their ’ Bemice Madison, “Social Security - earnings during the best five consecutive of California at Berkeley, which made Soviet Style,” Institute of International years within last 10 years of their employ- available the late Bernice Madison’s and Area Studies, [Jniversity of California ment before retiring. manuscript, “Social Security - Soviet at Berkeley, chapters 3 and 9 (forthcoming). lo Public assistance for the aged and the Style” (forthcoming); to analysts at the For family benefit programs from 1944-77, disabled who did not qualify for a pension see Social Securiv Legislation Throughout Soviet Branch, Center for Inter- was meager at best. Until 1985, eligible the World, 1949, Washington, DC, 1J.S. national Research of the U.S. Bureau residents in cities received an average of Government Printing Office, and Social of the Census, and to Professor Murray 11.8 rubles (20 rubles in Russia) a month. Security Programs Throughout the World, Feshbach of Georgetown University for Only eight republics (including Russia) editions 195 1 through 1979, Washington, sharing their rich resources. Colleagues provided public assistance to needy adults in DC, U.S. Government Printing Office. at the Social Security Administration rural communities not affiliated with collec- (John Kearney, Sally Sherman. Joseph 4 Unless otherwise specified, for detailed tive farms. These republics paid 10 rubles a Simanis, Melinda Upp, and information on pre-Gorbachev Soviet social month, an amount far below the poverty level John Woods), John Hambor of the security programs, see Social Securify of 50 rubles a month that was set in 1967. Department of the Treasury, and several Programs Throughout the World, 1985, As of November 1, 1985, these payments specialists outside the U.S. Government Washington, DC, 1J.S. Government Printing were raised to 30 rubles a month. See Office, 1986; for non-Soviet programs, see Madison, “Social Security - Soviet Style,” (Roger Beattie of the International Labor Social Security Programs Throughout the chapters 3 and 9. (In 1967, US$l = R0.9 Organization, Dalmer Hoskins and World, 1989. and in 1985, US$l = R0.84.) Xenia Scheil-Adlung of the Inter- national Social Security Association, i The 1964 Pension Law for Collective ” The Soviet employer contribution of an Farmers and subsequent ad hoc benefit en- Timothy King and Jeni Klugman of the average of 9 percent of payroll also included hancements for these rural pensioners helped contributions to cash benefits for sickness World Bank, Alastair McAuley of the to gradually bridge the gap between income and maternity. In comparison, 1989 payroll University of Essex, independent actuary security for State employees and collective contributions (from employers and employ- Robert J. Myers, and George Yaney of farmers until the two systems were unified in ees) for comparable programs (but excluding the University of Maryland) have kindly 199 1. By 198 1, collective farmers earned cash bene$tsfor sickness and maternity) reviewed drafts of this article and made 70.8 percent of the average earnings of State in the United States, Japan, France, and helpful comments. The author wishes to employees. See Madison, “Social Security - the Federal Republic of Germany were thank Jeni Klugman and Timothy King Soviet Style,” chapter 3. 14.12 percent, 13.95 percent, 27.53 percent for inviting her to be a member of the 6 Employer contributions and general and 20.08 percent, respectively. Among the World Bank’s Fact Finding Mission to revenues financed the Soviet pension pro- middle income countries, comparable payroll Russia, and acknowledges the generosity gram until January 199 1, when the 1990 contributions were at least 17.55 percent in of the World Bank for funding her trip. T7.S.S.R. State pension law took effect and Chile and 17.25 percent in Greece. The began to levy payroll contributions from notable exceptions in Western economies are employees as well. Australia and New Zealand, where generzl ’ For purposes of this article, “social revenues finance most of the social security 7 Statutory retirement age for full pension security” is applied primarily to income programs. See, Social Security Programs is 65 for both men and women in Canada, security programs for the aged, disabled, Throughout the World, 1989. survivors, and children. This definition of the Netherlands, and the United States; social security is broader than the current age 65 for men and 62 for women in Portu- I2 See, for example, Madison, “Social 1J.S. usage of the tenn. In the TJnited States, gal; age 65 for men and 60 for women in Security - Soviet Style,” chapters 3 and 16. “Social Security” refers only to cash benefits Austria, Chile, France, Germany, and Greece. I3 Two studies extensively discuss for the Old-age, Survivors, and Disability In contrast, retirement age at 60 for men living standards and poverty in the Soviet Insurance programs. In contrast, social and 55 for women is common among other Union: Mervyn Matthew, Patterns ojDep- security as defined by the International transition economies; for example, China, rivation in the Soviet linion, Stanford, CA, Bulgaria, Czech and Slovak Federal Repub- Labor Organization also includes unemploy- Hoover Institution Press, 1989, and lic, Hungary, and Romania. ment insurance and health care, which are Alastair McAuley, Economic Welfare too vast to be included in this article. ’ By 1985, a supplementary benefit of in the Soviet [inion: Poverty Living z In January 199 1, population in the 20 percent of pension was awarded to those Standards and Inequality, Madison, WI, Soviet IJnion and the Russian Federation who had accumulated 10 years’ work beyond 1Jniversity of Wisconsin Press, 1979. See totaled 290 million and 148.5 million, re- the qualifying 20-25 years under covered also, A Study of the Soviet Economy, Vol. 2, spectively. YVarodnoe khoziaistvo SSSR v employment and 25 uninterrupted years in Washington, DC, International Monetary 1990 g. Moscow, Finansy i statist&a, 199 1, the same enterprise. Those who had 10 years’ Fund, 1991, pp. 141-142; various articles pp. 68, and 76; “0 &isle i sostave semei v work beyond the qualifying 20-25 years or in Report on the USSR (in 1989, see Aaron SSSR,” Press- Vypusk, No. 156 (23 May only 15 years of continuous employment Trehub, “The Congress of People’s Deputies 199 I), p. 3; Sostoianie sotsial ‘noi zashchity received a supplemental benefit of 10 percent on Poverty,” Vol. 1, No. 24, pp. 5-8;

Social Security Bulletin l Vol. 56, No. 1 l Spring 1993 75 D.J. Peterson, “Supreme Soviet Adopts pp. 54-89; and Linda Cook, “Brezhnev’s pp. 1-4 (translated in FBIS-WV-90-121, Emergency Pension Measures,” Vol. I, ‘Social Contract‘ and Gorbachev’s Reform,” 22 June 1990, pp. 33-54). Soviet StudicTs, Vol. 44, No. 1, 1992, No.33, pp. 7-9; William Moskoff, “The Aged *3 See Article 3 of the “Regulation” in the USSR,” Vol. 1, No. 37, pp. 7-9; and in pp. 37-38. dated August 1990. For a list of family 1990, see Margot Jacobs, “Soviet Pensioners I7 “Goskomtrud [IJ.S.S.R. State Colmnit- allowances and their respective sources of Finally Get a Boost,” Vol. 2, No. 32, pp. funding, see table 1 and table 1 addendum. 2-5; Jeanine D. Braithwaite, “Income Distri- tee on Labor and Social Issues] Draft Pro- bution and Poverty in the Soviet Republics,” posal for Market Transition Safety Net,” 24 The U.S.S.R. State Committee on Journul qfSoviet Nationalities, Vol. 1, No. 3, Izvestiia, 9 August 1990, pp. l-2 (translated Labor and Social Issues introduced the em- 1990, pp. 15% 173; and Alastair McAuley, in JPRY-1 JEA-90-033, 13 September 1990, ployee contribution rate at 1 percent of earn- “Poverty and Underprivileged Groups in p. 59). ings, and set employer contribution rates at the USSR,” paper prepared for the Confer- ‘* See the April “Resolution of the 26 percent of payroll for 199 1, and 37 percent ence on Political Elites and Classes under U.S.S.R. Supreme Soviet on Immediate starting January 1992. The contribution rates Perestroika, held at Emmanual College, Measures for the Improvement of the Status were raised because of anticipated increases Cambridge, England, September 28-29, of Women, Maternity and Children, and the in expenditures. The demographic trend in the next century indicated a decline in the 1991. (The official ruble and U.S. dollar Strengthening of the Family” (translated exchange rate in 1989 was US$l = R0.6. in JPRS-IIP,4-90-022, 30 April 1990, working-age population (men aged 20-59 and women aged 20-54) and an increase in This rate remained constant through Septem- pp. 92-94) and the August “Resolution ber 30, 1992. On October 1, 1992, the ruble on Additional Measures for the Social Protec- the aged (men aged 60 or older and women was changed from the official rate to the tion of Families with Children in Connection aged 55 or older). The ratio of working-age population to aged population was 4.1 to 1 in market rate (USJ 1 = R280). As of March 3 1, with the Transition to a Regulated Market 1993, IJS$l = R576.) Economy” (translated in FBIS-SOV-90-159, 1990, and projected at 3.5 to 1 in 2005, and 2.8 to 1 by the year 2020. (Derived from I4 In May 1985, the Central Committee 16 August 1990, pp. 4546). population projections in A Study ofthe of the Commnunist Party, the Council of I9 By April 2, 199 1, the day of the first Soviet Economy, Vol. 1, Washington, DC, Ministers and the All-Union Central Com- price decontrol in the Soviet Union, the International Monetary Fund, 199 1, p. 350.) mittee of Trade Unions jointly issued a Government had streamlined the categories decree “Concerning the Most Important of benefits and revised the amounts for some Zs See Articles 1 and 10 of the “Regula- Measures for Improving the Material Well- family allowances so that the previously tion” for reference to its banking role and Being of Poor Pensioners and Families, established link to the minimum wage was commercial activity. and Strengthening Care of Solitary Citizens.” only partially preserved. For example, the 26 It should be noted that the voluntary A. Solovev, the deputy chief of the Social one-time grant at birth of each child was complementary pension scheme did not Security Department of the U.S.S.R. State decreed to be three times the monthly mini- appeal to many workers since its inauguration Committee on Labor and Social Issues, de- mum wage as of January 1, 199 1, when the in 1988. According to one official from the scribed it as a broad program for improving minimum wage was only 70 rubles. On U.S.S.R. State Committee on Labor and the living standards of the most vulnerable April 2, 199 1, the minimum wage was estab- Social Issues during an interview with the segments of the population. See A. Solovev, lished as 135 rubles in the Soviet Union author in 1990, many workers took a wait- “New Steps to Improve Pension Security,” ( 165 rubles in Russia) while the birth grant and-see approach, expecting that the forth- Sotsialisticheskaia zakonnost ‘, October 1985, was raised to only 250 rubles (350 rubles in coming new pension law would greatly im- pp. 53-55 (translated in JPRS-IIHR-86-002, Russia) or 1.85 times the minimum wage prove pension benefits anyway. 23 January 1986, pp. 36-4 1). For references (table 1). to incremental changes decreed during 27 See, for example, Donna Bahry, 1985-89, see Madison, “Social Security - 2o Benefits to children with HIV or AIDS “The Union Republics and Contradictions Soviet Style,” chapters 3, 9, and 16, and were extended to age 18 as of June 1, 1992. in Gorbachev’s Economic Reform,” Soviet D.J. Peterson, “Supreme Soviet Adopts Benefits to children of military personnel are Economy, Vol. 7, No. 3, 1991, pp. 2 15-255; not included here. “Compensation Plan for Emergency Pension Measures,” Report on Gertrude E. Schroeder, “Perestroika in the the ILSSR, Vol. 1, No. 33, 1989, pp. 7-9. Families with Young Children Explained,” Aftermath of 1990,” Soviet Economy, Vol. 7, Argument ifikw, No. 15, April 199 1, p, I No. I, 199 1, pp. 3-l 3; and The Economy of Is Madison, “Social Security - Soviet (translated in JPRS-IDEA-91-020,25 April the Former IJ.S.S.R. in 1991, Washington, Style,” chapters 3 and 16, and Robert J. 199 1, pp. 70-72). DC, International Monetary Fund, 1992, Myers, “The New Voluntary Annuity p. 11. Program in the Soviet Union,” Society of ” Pravda, 12 September 1986. On the Actuaries Transactions, 1989, pp. 189-l 98. complex and often contradictory laws and 28 The Economy ofthe Former IJ.S.S.R. regulations governing the Soviet pension in 1991, International Monetary Fund, 1992, I6 For discussions of the new “social con- program until the 1990 new pension law, p. 11. tract,” see Elizabeth Teague, “Gorbachev’s see Madison, “Social Security - Soviet ‘Human Factor’ Policies,” pp. 224-239, 29 Ann Sheehy, “Fact Sheet on Declara- Style,” chapter 4. For the text of the 1990 and Peter Hauslohner’s “Commentary,” tions of Sovereignty,” Report on the USSR, U.S.S.R. pension law, see Trud, 30 May pp. 344-352 in Gorbachev’s Economic Plans, 9 November 1990, pp. 23-25 and her “The 1990, pp. l-4. (Law translated in FBIS-SOV- Vol. 2. Washington, DC, Joint Economic State of the Multinational Union,” Report 90-121, pp. 33-54.) Colmnittee, U.S. Congress; Peter Hauslo- on the IJSSR, 4 January 199 1, pp. l6- 19. hner, “Gorbachev’s Social Contract,” ** For provisions of the 1990 I7.S.S.R. Gertrude E. Schroeder, attributes the declara- Soviet Economy, Vol. 3, No. 1, 1987, State Pension Law, see Trud, 30 May 1990, tion of republic sovereignty to the conflicts

76 Social Security Bulletin l Vol. 56, No. 1 l Spring 1993 between the Union Government and the 34 The Ministry of Labor has closely increases and other changes and the Ministry republics over control of the latter’s eco- aligned its policy with the Government’s of Social Protection’s explanatory instnic- uomic affairs and individual enterprises. radical economic reforms, rather than with tions for their implementation, see “Prikaz She observes “a growing regional autarky,” labor interests. Labor interests are repre- o povyshenii gosudarstvennykh pensii v iu the second half of 1990. She then recounts sented by the present-day splintered trade Rossiiskoi Federatsii,” 29 October 1992. Gorbachev’s efforts to forge a coordination of unions that are merely shadows of the power- For this and other documents relating to price, wage, and social policies with the ful Communist Party controlled All-l Jnion benefit changes of family allowances and republics, together with an agreement in Central Conmnittee of Trade 1 Jnions under pensions, I am indebted to Mr. Lev Yakushev budgetary matters. 1 Jnfortunately, Gorbachev the Soviet regime. Critics of Government of the Ministry of Social Protection who failed to induce some republics (including policies have claimed that the incomes of provided the texts of these decrees. See also, Russia) to remit agreed-upon funds to the 90 percent of Russia’s population have fallen “Minimum Pension Levels To Increase,” 1Jnion budget. See Schroeder, “Pm-&roiku below subsistence level. For example, “Local Irrtufix, I5 January 1993 (cited in FBZS- in the Aftermath of 1990,” in Soviet Eco- Soviet Deputies Mark Reform’s Progress,” SOL’-93-011, 19 January 1993, p. 36). nomy, Vol. 7, No. 1, 1991, p. 3-13. IT’-TASS, 29 June 1992 (translated in j7 “Edict of the Russian Federation Presi- FBIS-SOV-92-126, 30 June 1992, p. 25). dent ‘On Increasing the Amounts of Social 3o See, Jeanine D. Braithwaite, “The The Labor Minister conceded in Febru- Benefits and Compensatory Payments to Social Safety Net in the USSR in the ary I993 that more than one-third of the Families with Children and Other Categories (Sovereign‘?) Republics,” paper presented population was below the poverty line, which of Citizens,“’ Russiiskie vesti, 28 November at the 23rd National Conference of the was estimated as 4,000 rubles per person in 1992, p. 4 (translated in FBIS-ILSR-92-159, American Association for Advancement of December 1992. See, “Labor Minister: One- 14 December 1992, pp. 7-8); “Yeltsin Decree Slavic Studies, Miami, FL, November 25, Third of Population Below Poverty Line,” Increases Social Benefits,” (translated in 199 1, p. 4; also my interview of an official Interjbx, 5 February 1993 (cited in FBIS- FBZS-SOV-93-025, 9 February 1993, p. 18); from the U.S.S.R. State Committee on Labor SOV-93-025, 9 February 1993, pp. 22-23). and “Further Details on Benefits,” (trans- aud Social Issues, February 199 1. The Labor Ministry‘s methodology for the lated in FBIS-SOV-93-02.5, 9 February 1993, established poverty line is not readily avail- pp. IS-I 9); see also pension increases below. 31 Jeanine D. Braithwaite, “The Social able. The minimum pension and the mini- Safety Net,” 199 1, p. 4, citing report in j8 For text of the Russian State Pension mum wage in December I992 was 2,250 Izvestiia, 2 May 199 1. Law, see Sovetskaia Rossiia, 7 Decetnber rubles and 900 rubles, respectively. 1990, pp. 3-5 (translated in FBZS-SOV-93- j2 A number of republics had passed For a recent discussion of various esti- 025, 9 February 1993, pp. 18-19). their respective pension laws during 1990 mates of poverty line, see Sheila Mamie‘s j9 For comments on improved benefits aud I 99 1, before the collapse of the Union “Economic Reform and Poverty in Russia,” under the November 1990 Russian pen- CTovermnent. This may be one reason for WE/RL Research Reports, February 1993, sion law by M. Zakharov, Chairman of the the limited variations among the republic pp. 31-36. U.S.S.R. Cotmnission on Social Policy, and pension laws from the U.S.S.R. model. See, j5 During an interview in spring 1992, the subsequently the chairman of Commission ou for example, “Zakon Latviiskoi Respubliki o former Minister of Labor and Employment, Social Policy of the Russian Supreme Soviet, gosudarstvennykh pensiiakh,” 29 November A. Shokhin, explained that the PSM was not see V. Romanenko, “Privileges for Evety- 1990 (published in Arods, gazeta profsoiuzov equivalent to the minimum consumer budget, one,” Argument?, i fakty, December 1990, Latvii, I9 January I99 1, pp. 2-4); “Zakon which included the consumption of more than pp. 2-3 (translated in JPRS-CJEA-91-003, Estonskoi respubliki: o pensiiakh,” 15 April 200 items of goods and services and was used 18 January 199 1, pp. 2X-30). I99 I ; “Zakon Kazakhskoi Sovetskoi So- in times of economic stability as the lower 4o See note 36. tsialisticheskoi Respubliki o pensionnom limit for nonnal life. He then suggested that obespechenii grazhdan v Kazakhskoi SSR,” 41 The Labor Ministry’s July 1992 esti- only 15-20 percent of the population in (published in Kazakhstanskaia Pravda, mates for monthly PSM for pensioners in Russia lived below the PSM, which was 6 August 199 1, pp. I-4); “0 gosudarstven- January, April, June, and July 1992 were estimated to be only 550 rubles a month at nom pensiolmom obespechenii v SSR Mol- 900 rubles, 1.335 rubles, 2,256 rubles, and the end of January. See, “A. Shokhin: We dova,” 27 December 1990; and “Zakon o 2,48 1 rubles, respectively. See, Olga Plak- Will Support Those Having a Tough Time. pensionnom obespechenii grazhdan v hotnikova: “Living Standard; Time of Wildly How to Get Through the Difficult Transi- Turkmenskoi SSR,” 25 March 199 I. I am Increasing Prices,” Rossiiskaia guzeta, 8 July tional Period to the Market,” Tnrd, 4 April iudebted to Mr. Nikolai Shinkov, Intema- 1992, p. 3 (translated in FBIS-lLSR-92-092, 1992, p. 3 (translated in FBIS-SOY-92-067, tional Labor Office, who made available the 22 July 1992, pp. 25-26). The minimum 7 April 1992, pp. 28-30). texts of these laws. pension for these corresponding months were Shokhin also explained that the 342 rubles, 642 rubles (including a supple- j3 Some 90 percent of all retail prices minimum wage since January was devel- ment of 300 rubles for April), 900 rubles, and and about 80 percent of wholesale prices oped according to an estimated PSM. See, 900 rubles, respectively. In other words, the were taken off control in January 1992. “Shokhin Fields Questions ou lJncmploy- minimum pension was 38 percent of PSM iu ment,” Moscow Russia?r T&visiorr Gtwork, Consumer price and wage increases in 1992 January 1992, rose to 40 percent of PSM in 2 June 1992 (translated in FBIS-SOT’-92-109, were reported by the Minister of Labor. See, June, and fell to 36 percent of PSM by July. 5 June 1992, p. 42). “Labor Minister: One-Third of Population 42 Ministry of Social Protection officials Below Poverty Line,” Interfax, 5 February 36 For Supreme Soviet‘s October 2 1, acknowledged in an interview in October 1993 (cited in IBIS-SOV-93-025, pp. 22-23). 1992 decree stipulating minimum pension 1992 that there had been delays of up to

Social Security Bulletin l Vol. 56, No. I l Spring 1993 77 2 months in benefit payments due to manual Ministry of Social Protection’s publication, without establishing individual employee computation and recomputation of benefits. Organizatsiia sotsiulnogo obespecheniia accounts to credit the employees’ contribu- (In the international context, the capability to pensionnoe obespechenie, No. 3, 1992; and tions accordingly. (The employer contributes recalculate benefits in 2 months is considered “Law of the Russian Federation on the Early an additional 5.4 percent of payroll to a highly efficient, and it compares rather favor- Introduction of the RSFSR Law ‘On State Social Insurance Fund for cash benefits for ably even with countries where benefit com- Pensions in the RSFSR,“’ Rossiiskaia sickness and maternity.) putation is largely or completely automated.) guzeta, 20 April 1992, p. 2 (translated in 51 IJnless otherwise specified, the follow- FBIS-XIV-92-080, 24 April 1992, pp. 26- ing accounts about the non-State pension plan 43 See, “What Is Going on with Pen- 27). For an account by a Ministry of Social are based on (I) an interview with Vladimir sions?” Svobodnyi Sukhalin, 7 March 1992, Protection official about the problems created Nikitin, Director General of the Non-State p, 4 (translated in FBI&USR-92-050, 1 May by some faulty design of these wage coeffi- Pension Fund on October 27, I992 and (2) an 1992, pp. 68-70); “Commission on Social- cients that had been developed by the item about the organization that appeared in Labor Relations Meets,” Znterfux, 8 May Supreme Soviet, see V. Raskin, “News on Kommersant, 1 September 1992. According 1992 (reported in FBIS-SOV-92-091, 11 May Pensions in Russia,” Selskaiu zhizn, 7 March to Nikitin, any organization or enterprise can 1992, p. 37); “Chelyabinsk-Russian Budget 1992, p, 4 (translated in FBIS-ILSR-92-042, set up a non-State pension flmd as an indi- Crisis,” RFE/RL. Daily Report (No. 84), 15 April 1992, pp. 29-30). vidual account, receive contributions from 4 May 1992, p. 2. These anecdotal accounts Without revaluation of past wages, employers and/or employees, and invest the of delays in benefit payments do not provide practically all pensioners received the same accmnulated capital. Employees will benefit a systematic analysis of the scale of the prob- minimum pension, plus a monthly supple- from the investment profits at time of retire- lems cited here-for example, the proportion ment, if any. Those receiving more than the ment in payment of contributions plus inter- of pensioners and recipients of family allow- minimum pension were generally paid extra est. Pension payments can take the form of ances affected, and how severely. A. Zin- benefits credited for their qualifying employ- lump sum, termed almuity, inheritance for chenko, director of a main administration of ment exceeding the required 25 years. For family members, account transfer to family Russia’s Central Bank cited a total of 39 example, the maximum pension in March members, or other options. billion rubles in shortfall of payments for 1992 was 6 10 rubles, consisting of the mini- wages, pensions, and allowances in March s2 “Program for Deepening Economic mum pension of 342 rubles a month, plus a 1992, as compared with 19 billion rubles in Reforms (up to 1995-l 996): Brief Smmnary; supplement of 200 rubles a month for March shortfall in January 1992. He did not provide Prepared by the Government of Russia, awarded to all pensioners, and an additional an amount for pensions and allowances sepa- Taken under Advisetnent by the Parliament,” 20 percent of 342 rubles (that is, 68 rubles) rate from wage nonpayments.“Bank Official Rossiiskie vesti, 11 July 1992, pp. 3-16 for a maximum of 20 years’ qualifying em- on Current Cash Shortage Implications,” (translated in FBIS-USR-92-093, 24 July ployment over the required 25 years. In other Trud, 11 April 1992, p.2 (translated in FBIS- 1992, pp. 26-54, see especially, pp. 35-36 words, the difference between the maximum CJSR-92-045,22 April 1992, pp.37-38). and 54). pension and the minimum pension was only According to Russia’s State Committee 68 rubles. 53 Alexander Lonshteyn and Alexander for Statistics, in the first quarter of 1992 Zayants, “Pensions in Russia: Transforma- 46 This cap for the maximum benefit did (that is, before the cash and credit crunch), tion in a New Market Economy,” C’ontingen- not apply to certain special categories of the payments of pensions and allowances ties, January/February 1993, pp. 28-4 1. I pensioners, for example, survivors of indi- were delayed at one in every four enterprises am grateful to Messrs. Howard Young and viduals who died of war injury or disease in industry, and one in every three enterprises Robert J. Myers who brought this article to contracted during military service. in construction and agriculture, without my attention. specifying the causes for such delays. See, 41RFE/RL Duily Report, 4 May 1992, 54 Robert L. Clark, “Inflation Protection “The Socioeconomic Situation of the Russian p. 2; “Gaydar Addresses Deputies on Bud- of Retirement Benefits,” pp. 53-57, in Pen- Federation in the First Quarter of 1992,” get,” Moscow Russian Television Network, sion Policy.. An International Perspective, Ekonomiku i z/~im, No. 17, April 1992, pp. 16 July 1992 (translated in FBIS-SOV-92- John A. Turner and Lorna M. Dailey, editors, 14-15 (translated in FBZXJSR-92-0.55, 8 138, 17 July 1992, pp. 44-46). Washington, DC, 17,s. Govenunent Printing May 1992, p. 19). 48 Based on unofficial, preliminary esti- Office, 199 1. In the same publication, see 44 See Articles 18 and 102 of the Novem- mates by officials from both the Supreme also papers by David W. Conklin, “Pension ber 1990 Russian State Pension Law, “On Soviet’s Commission on Social Policy and Policy Reforms in Canada,” pp. 9 l-93; Kees State Pensions in RSFSR,” Sovetskaia the Ministry of Social Protection. According Zweekhorst, “Developments in Private Pen- Rossiiu, 7 December 1990, pp. 3-5 (trans- to Russian Federation Pension Fund officials, sions in the Netherlands,” pp. 179-l 8 1; and lated in JPRS-UEA-91-004,23 January 199 1, the compliance rate of payroll contributions is William Birmingham, “Occupational and pp. 15-30). as high as 95 percent. Personal Pension Provision in the United 49 In addition, benefit expenditures paid Kingdom,” pp. 225-227. 45 This newly introduced revaluation to older unemployed workers who are al- upgrades past earnings by multiplying them 55 The Ministry of Social Protection lowed to retire up to 2 years before reaching with a coefficient, ranging from 11.2 fOT estimates that about 1 million persons were retirement age would be reimbursed by the earnings in 1971 and earlier, to 2.9 for eam- using food stamps or receiving free meals in Employment Fund. ings in 199 1. An October 2 1, 1992 amend- November 1992, for example. I Jnless other- ment further upgraded the coefficient for 5o At present, employers contribute a total wise indicated, the following discussions 1991 earnings from 2.9 to 5.5, applied retro- of 32.6 percent of payroll (including 1 per- are based on interviews with officials of the actively from May 1 to November 1. See, the cent on behalf of employees) for pensions, Ministry of Social Protection, and depart-

78 Social Security Bulletin l Vol. 56, No. 1 l Spring 1993 ments of social protection in Altai, Chelia- 59 For example, “Local Prices May Cause of Charitable Aid Denied,” Rossiiskaiu binsk, and Novosibirsk provinces from ‘More Social Unrest,“’ TASS, 13 January guzeta, I I June 92, p. 8 (translated in IBIS- October 26 through November 17 1992. For 1992 (reported in FBIS-SOV-92-008, XIV-92-1 17, 17 June 1992, p. 29); and monthly press summary of local government 13 January 1992, p. 44); “All for the Mosko- “Problems in Aid Distribution Noted,” public assistance activities, see monthly news vites,” Verchenliaia A4oshvu, 6 February l’olianuia pruvdu, 9 April 1992, p. 2 (trans- digests Humanitarian Aid and Philanthropy 1992, p, 1 (translated in FBIS Report. lated in FBIS-liSR-92-072, 15 June 1992, ~II the Former Soviet Union, begirming Central Eurasia, 18 March 1992, pp. 46-7); p. 61). March 1992. For the legislative basis of “Proceeds of Foreign Aid to Moscow Eyed,” Q On April 10, 1993, Yeltsin decreed local governments’ responsibility for social Rossiiskuiu guzetu, 2 1 April I 992, p. 2 an increase of the minimum wage to 4,275 welfare programs, see Article 56 of “Law (translated in FBIS-XIV-92-080, p. 34); rubles, the level of the minimum pension on Krai and Oblast Soviets of People’s Depu- “New Organization Seeks to Improve Social since February 1, 1993. See, “Yeltsin ties and Krai and Oblast Administrations,” Conditions,” lzvestiia, I 1 November 199 1, Raises Monthly Minimum Wage,” lnte&x, adopted March 1992, in Rossiiskui guzeta, p. 2 (translated in JPR‘XJPA-91-047, IO April 1993 (cited in FBlS-SOV-93-068, 20 March 1992, pp. 3-5 (translated in FBIS- 10 December 199 1, p. 67); “Khabarovsk 12 April 1993, pp. 32-33). IlSR-92-054, May 1992, pp. 15-16). ‘Kray’ Fund for Social Assistance Estab- 63 As noted earlier, family benefits were lished,” Rossiiskaia gazeta, 29 January 1992, 56 The 1993 Cheliabinsk provincial bud- also upgraded, although not to the fullest p. 3 (translated in FBIS-lJSR-92-012, p. 1 13): get for social assistance is based on the Pro- extent of pension adjustments. “Finance “Ispolkom Official on Socioeconomic Situa- vincial Fund for the Social Support for the Minister Criticizes Move to Increase Pen- tion in Nalchik,” ~ubrtrdino-Bullicrrskrrirr, Population, provided by the Cheliabinsk sions,” FBIS-SOV-93-01 I, 18 January 1993, 5 March 1992, pp. 1-2 (translated in FBIS- Provincial Department for Social Protection. p. 34. It does not represent additional provincial IJSR-92-058, I5 May 1992, pp. 62-65); V. Tereshchenko, “Who Will Defend the Poor: M Quotation from Evgeni Timofeev, budgetary allocations or Central Government The Capital’s Authorities Are Doing What “Ministry of Labor IJnveils Its Plans. The subsidies for social assistance purposes. Minimum Wage Could Catch Up With the Novosibirsk provincial public assistance They Can,” Moskovskii Komsontolets, 19 June 1992, p, I (translated in FBIS-1 ISR- Minimum Pension,” Kommersant-Daily, 6 expenditure to pensioners and to children February 1993, p. 9. (translated in FBIS- are derived from the monthly report provided 92-089, 17 July 1992). The Moscow City Fund for Social Protection reportedly receives SOF’-93-025, 9 February i 993, p. 23). by the Provincial Social Protection Depart- ment. The provincial expenditures represent subsidies from government and nongovem- 6’ The Finance Minister first reacted to totals from the city of Novosibirsk and other ment sources, including the proceeds from Supreme Soviet’s decision to carry out the auctions of foreign aid food packages. The cities and counties in the province, with quarterly pension benefit adjustment with an Novosibirsk city providing about 45 percent auctions are held for enterprises to make estimate of a total increase of pension and of total expenditures to 47 percent of all wholesale purchases of food supplies for benefit expenditure at 4.8 trillion rubles, or recipients. 1 Jnfortunately, comparable re- their workers and former workers now on ahnost 4 percent of the gross national prod- pensions. “Food Auctioning of Humanitarian ports for other months or for other provinces uct. He also maintained that total increases in Aid Begins,” Moscow Radio Rossii Neh+lork, are not available. social security benefits and wages would 16 April 1992 (translated in FBIS-SOV-92- result in an additional 15- 16 trillion rubles 5’ Charitable activity had a long history 075, 17 April 1992, p. 27). See also a five- paid to the public and are thus likely to trig- before the Soviet regime. On the reemergence part series in Moscow Times, IO- 14 Novem- ger further inflation. “Finance Minister Criti- of charity in the late 1980’s, see Mervyn ber 1992, featuring international charitable cizes Move to Increase Pensions,” FBIS- Matthews, “‘Perestroika’ and the Rebirth organizations’ holiday drive to aid the needy, SOV-93-011, p. 34. Ten days later, when the of Charity,” in Soviet Social Problems, including refugees; and monthly digests, Finance Minister revised his 1993 budget A. Jones, W.D. Comlor, and D.E. Powell, Humanitutian Aid and Philanthropy in the estimates, taking into consideration new editors, Boulder, CO, Westview Press, 199 1, Former Soviet (inion beginning with March changes in tax legislation and pension and pp. 154-l 7 1. For examples of current activi- 1992. wage amounts, he identified an increase of ties of the Children’s Fund, and Fund for 624 billion rubles in the federal budget de% Health and Charity, see Humanitarian Aid 6o “Decree on the Procedure for Applying Legislative Acts of the RSFSR Concerning cit. The expected budget increase resulting and Philanthropy in the Former Soviet from any minimum wage changes would be Union, June 1992, p. 5; July 1992, p. 1; Taxation of Enterprises, Associations, and 237 billion rubles. See, “Finance Minister and September 1992, p, 4. Organizations,” Rossiiskuiu guzeta, 3 July 199 1, p. 2 (translated in FBIS-USR-91-014, Barchuk’s Address,” FBIS-WV-93-019, s8 Mervyn Matthews, “‘Perestroika’ 16 July 199 1, pp. 75-76); and Humaniturian 1 February 1993, pp. 31-32. and the Rebirth of Charity,” in Soviet Aid und Philunthropy in the Former Soviet 66 To date, benefit indexing has not been a Social Problems, pp. 154- 17 1; Oxana (inion, July 1992, pp. l-2. major factor because of the arbitrarily low Antic, “Charitable Activities of Churches level of benefit adjustment. The infusion of in the I JSSR,” Report on the (JSSR, 6’ For example, “Khasbulatov Accused large sums of credits and subsidies to ailing 22 September 1989; pp. 7-9; Yelena Kala- of ‘Embezzlement,’ Abuses,” ITAR-TASS, 25 May 1992 (reported in FBCXLWV-92- State enterprises since smmner of 1992 is cheva, “One More ‘Hope,“’ lzvestiia, 101,26 May 1992, pp. 27-28); 0. Plakhotni- generally regarded as the major factor in 11 November 199 1, p, 2 (translated in kova, “Scandal: He Who Dares Gets the fueling inflation. JPRC-liPA-91-047, December 199 1, p. 67); and Michael Bourdeaux, “Russia’s Good Food,” Rossiiskala gazeta, 2 1 April 1992, 67 Unless otherwise indicated, discussion Samaritans,” Tublet, 19 January 199 1, p. 2 (translated in FBIS-SOV-92-080, in this and the following paragraphs in this 24 April 1992, p. 34); “Allegations of Sale pp. 70-7 1. section are based on interviews with otficials

Social Security Bulletin l Vol. 56, No. I l Spring 1993 79 of the Supreme Soviet’s Social Policy Com- mist at the World Bank, reported in her State budget allocations for social pen- mission, Russian Federation Pension Fund, “Intergovernmental Fiscal Relations in the sions. and the Employment Fund for and Ministry of Social Protection in Moscow, Russian Federation” (draft report), 1992, payment of benefits to unemployed older and provincial and country officials in social p. 28. workers retiring up to 2 years before protection departments and pension funds in ” It is well documented that Russian normal pensionable age. Contribution Novosibirsk, Altai, and Cheliabinsk prov- enterprises continue to provide extensive rates are 3 1.6 percent of payroll for em- inces from October 26 through November 17, social and welfare services and subsidies 1992. ployers (20.6 percent for State and col- (including subsidies of foodstuff and other lective farms) and 1 percent of wages for 68 In the vast majority of these cases, the daily necessities) to employees aud their employees. The self-employed (including Ministry of Social Protection finds it difficult families. Many enterprises in late 199 1 and to compute and recalculate benefits with little early 1992 have stepped up their services and private farmers and lawyers) pay 5 per- (if any) advance notice given that all compu- subsidies as they bartered for food, medicine, cent of income; other working citizens tations are done manually. There also have and clothing for their employees. As State contribute 1 percent of their earnings. been incidences where the Supreme Soviet’s enterprises tighten their finances or face There is no wage ceiling for contribution amendments caused an uproar from pension- bankruptcy, their welfare services and subsi- purposes. At present, there are no indi- ers. The April 3, 1992, amendment, for ex- dies would be curtailed or eliminated. It vidual records for employee contribu- ample, issues a list of coefficients to upgrade remains unknown whether the central or tions. Plans are underway to establish past earnings for benefit computation. The even local governments have developed plans such records starting in 1993. coefficients listed for 1990 and 199 1, how- to meet the expected rising demands to due ever, in effect created a situation in which to enterprise closings. two workers with identical employment and Quafifving Conditions earnings records, the worker who retired on Old-age pension.-Prerequisites for December 3 1, 1990, would receive higher an old-age pension are: Age 60 and benefits than the worker who retired on Appendix: Russian Federation 25 qualifying years of work for men, or January 1, 199 1. The Ministry had to con- Pension Program tinue to calculate pension benefits based on age 55 and 20 qualifying years of work this set of coefficients until the Supreme for women. (Qualifying years include Soviet revised it several months later in fall Basic Laws and Coveruge periods of study, military service, mater- 1992. nity leave, or caring for a disabled rela- The November 1990 Russian tive.) Requirements are reduced for work 69 See, Moscow News, 11 February 1993, Pension Law (effective March 199 1) in the far North region, difficult or dan- p. 11. I am indebted to James A. Duran for provides old-age, disability (general gerous work, mothers of at least five bringing the Moscow News item to my atten- and work-related), and survivors ben- tion. children or disabled children, and dis- efits for all employed persons. Under abled veterans. (Social pensions are ‘O Ministry of Social Protection officials each broad categoq, there are two types insisted that public assistance fell within the of pensions: Work-related labor pen- payable to men aged 65 or older and jurisdiction of local governments and there sions paid on the basis of a contribution women 60 or older who do not meet the was no need for a Central Government role in record and social pensions paid to the requirement for covered employment.) this area. This view was conveyed to me at a Some groups (especially those working meeting on November 16, 1992, at the Minis- disadvantaged aged, disabled persons, and survivors with less than the five under hazardous or dangerous condi- try in Moscow. tions) may receive their pensions earlier qualifying years of employment. The ” These funds are alternately named as and/or with shorter qualifying years. For Funds for the Social Support of the Popula- pension law has been amended by legis- lation and decrees in 199 1 (April and example, civil aviation pilots, teachers, tion. medical workers, and certain categories December) and in 1992 (February, l2 The Supreme Soviet Fund was set up of artists can retire provided that they April, May, July, and October). Gener- for regions experiencing “special hardship.” satisfy only the condition for qualifying ally, the amendments relate to periodic See, “Resolutions on Social Security for [the] years, regardless of age; miners in ex- adjustments of the minimum pension Underprivileged,” Rossiiskaia gaze& 3 1 ceptionally high-risk mines can retire December 199 1, p. 3 (translated in FX?- and computation of benefits. Contribu- tion rates, qualifying conditions, and provided that they have contributed for USR-92414, 13 February 1992, pp. 85-86); 25 years and are aged 50 or older; moth- and “Khasbulatov Issues Orders on ‘Social administrative agencies have remained ers of at least five children or of disabled Defense’ of Krais, Oblasts,” Rossiiskaia unchanged since 1990. (See table I for gazetu, 2 April 1992, p. 2 (translated in the number of pensioners by category, children become eligible for benefits FBIS-USR-92443, pp. 59-6 1). During our 1991-92.) with 15 qualifying years at age 50. In stay in Moscow, attempts to obtain infonna- addition, unemployed individuals within tion from various committees and commis- 2 years of normal pensionable age may Sources of Funding sions under the Supreme Soviet about the receive their pension without penalty. current status and distribution of this Fund There are three sources of funding There is no retirement test for old-age were largely unsuccessful. for the pension program: Payroll contri- benefits. 73 Christine Wallach, a principal econo- butions from employers and employees, Disability pension.-Qualifying

80 Social Security Bulletin l Vol. 56, No. 1 l Spring 1993 conditions are: Incapacity for any work ability is reviewed annually, except if the resulted from general causes. Contribu- (total disability) or usual work (partial recipient is over pensionable age. There tion requirements are waived if death is disability), and a minimum of 15 qual- is no retirement condition for Group III. related to work or military service. The ifying years of work, depending on Neither the eligibility review nor the pension is payable to nonworking sur- (1) the degree of permanent physical or retirement test for Groups I and II are viving dependents who (1) had been mental disorder resulting in complete or rigorously enforced. Official statistics for dependent on the deceased as a perma- substantial loss of ability to work, and January 1992 showed that 6.6 percent of nent and principal source of material (2) the required number of years of qual- Group I and 7 percent of the Group II support, and (2) were under age 18 (23 if ifying employment (from I to 15 years, disabled continued to work while receiv- students), disabled since childhood, over rising with the age of the worker). Indi- ing disability pensions. normal pensionable age, or grandparents viduals who became disabled when they Eligibility for work-related disability (in the absence of any other support). were under age 20 are not required to (work accidents, occupational diseases, meetthe employment conditions. There or war injuries) requires certification of Pension Benefits are three groups of disability: Group I, a permanent condition of total or partial Old-age.-Monthly benefits are totally disabled and require constant incapacity for work. There is no pre- attendance; Group II, totally disabled equal to 55 percent of wage during the condition for years of qualifying employ- 2 years preceding retirement, any con- and incapable of work; and Group III, ment. partially disabled. Continuing eligibility tinuous 5-year period, or the 12 months Survivor pension.-Contribution preceding retirement (during January I, for Group I is subject to review every requirements for survivor benefits are the 2 years. and for Groups II and III dis- 1992-December 3 1, 1993), whichever same as for disability pensions if death is higher. In addition, benefits are in- creased by I percent of the wage base Table I.-Number of pensioners and percent working, by type of pension, for each year of service over 25 (20 for 1991-92 women), but not more than 20 percent. Number of pcnsioncrs As of November 1, 1992, past earnings (in thousands) Pcrcdnt workin D are indexed with a coefficient ranging Pensioners by type l/l/911 l/l/92 l/l/91 1 Ill192 from 11.2 for earnings in 1971 and earlier to 5.5 for earnings in 1991. TomI 32,850 34,053 (1) (1) Minimum pension is 8,122 rubles a Pension limd suppor~cd: month, effective May 1, 1993. Individu- Labor pensions I.444 32,539 (I) (1) als receiving the minimum pension are Old-a&3 ? 26,Ol I 27,131 23.5 20.2 also paid 1 percent of the minimum Disability 3,322 3,250 21.3 20.2 pension for each year of service over Group I. (494) (452) (6.6) (6.4) 25 for men (20 for women). The maxi- Group II. CLOW (1,998) (9.1) (6.8) Grollp III. (793) WQ (66.6) (61.7) mum benefit is three times (3.5 for haz- Survivors 2,111 2,158 a, 01 ardous occupations) the minimum pen-

Employmznt fund supported: sion or no more than 75 percent of the Earl) reliremcnl ’ 82 x4 34.4 37.1 individual’s pre-retirement wage. There is an additional monthly payment for Sme budget supported: Social p2nsions ’ 471 870 0, (3) pensioners requiring constant atten- Ok-age 6 93 33 0) 0) dance, and for each disabled dependent 0) Disability 8 56 (2, of nonworking pensioners at two-thirds Disabled since 368 471 (3, (3 of the minimum pension. childhood Disability-Monthly benefits for Survivors 3 IO (1, 0, Group I disability are equal to old-age Military pension (scryicxm<:I and families). 852 551 0, (I) pensions and two-thirds of minimum pensions for constant attendance. For Group II disability, the benefits are the same as the old-age pension. For Group III disability, benefits are payable at 30 percent of pre-disability wage, but not less than two-thirds of the minimum pension. Disabled pensioners who reach the normal pensionable age are eligible for an old-age or disability pension, whichever is higher. Levels of minimum

Social Security Bulletin l Vol. 56, No. I l Spring 1993 81 and maximum benefits are the same as Protection’s Ilrganizatsiia sotsial ‘VJO~O for the old-age pension. obespecheniiu pensionnoe obespechenie, Survivor.-Monthly benefits are NO. 3, 1992; Nicholas Barr, I~zcome Tramfirs payable to each of the surviving depend- and the Social Safety Net in Russia, Wash- ems at 30 percent of the deceased ington, DC, The World Rank, 1992; and worker’s wage. If an individual’s death “Pensions Raised,” RFEBL Daily Rclport, is related to military service, the benefit 19 April 1993, p. 2. amount to the surviving family equals the maximum pension benefit under the old-age pension. All benefits (old-age, disability, and survivor) are adjusted quarterly, accord- ing to cost-of-living increases, as decreed by the Russian Supreme Soviet.

Program Administration The Russian Federation Ministry of Social Protection exercises general coor- dination and guidance over administra- tion of the pension program. Provincial and county departments of social protec- tion administer the program locally, including processing and adjudicating claims, and computing and paying ben- efits. The Russian Federation Pension Fund (under the jurisdiction of the Supreme Soviet) provides general coordi- nation and allocation of resources across regions, and the payment of pensions abroad. Provincial branches of the Federation Pension Fund allocate pay- ments across counties and submit the surplus to the Federation Pension Fund. County branches of the Federation Pen- sion Fund collect payroll contributions and submit funds to their provincial superiors for distribution.

Sources: “Law on State Pensions in RSFSR,” Sovetskuia Rossiia, 7 December 1990, pp. 3-5 (translated in JPRS-UEA- 91-004,23 January 199 1, pp. 15-30); two mimeographed documents provided by the Ministry of Social Protection: “Prikaz o povyshenii gosudarstvermykh pensii v Rossiiskoi Federatsii,” and “Ukazanie o povyshenii pensii v sootvetstvii s Zakonom Rossiiskoi Federation ot 21 oktiabria 1992 goda ‘0 povyshenii gosudarstvermykh pensii v Rossiiskoi Federatsii;” “Procedure for Payment of Insurance Contributions by Employers and Citizens to the Pension Fund of the Russian Federation (Russia),” Rossiiskaiu gazeta, 23 January 1992, p. 2 (translated in FBIS-IiSR-92409, 30 January 1992, pp. 70-7 1); the Ministry of Social

82 Social Security Bulletin l Vol. 56, No. I l Spring 1993