No. 225 8 October 2018 russian analytical digest www.css.ethz.ch/en/publications/rad.html www.laender-analysen.de RUSSIA’S PENSION REFORM ■■ANALYSIS Carrot and Stick: How It Was Possible to Raise the Retirement Age in Russia 2 By Martin Brand, CRC 1342 “Global Dynamics of Social Policy”, Research Centre for East European Studies at the University of Bremen ■■STATISTICS Pensions in Russia 6 ■■OPINION POLL Russian Public Opinion on Pension Reform 8 ■■ANALYSIS From Stagnation to Recalibration: The Three Stages in the Transformation of the Russian Pension System 9 By Elena Maltseva, University of Windsor ■■ANALYSIS Russian Pension Reform: The Rise and Failure of Organized Protests 14 By Irina Meyer (Olimpieva), Center for Independent Social Research Institute for European, Research Centre Center for Center for German Association for Russian, and Eurasian Studies for East European Studies Security Studies Eastern European Studies East European Studies The George Washington University University of Bremen ETH Zurich University of Zurich RUSSIAN ANALYTICAL DIGEST No. 225, 8 October 2018 2 ANALYSIS Carrot and Stick: How It Was Possible to Raise the Retirement Age in Russia By Martin Brand, CRC 1342 “Global Dynamics of Social Policy”, Research Centre for East European Studies at the University of Bremen DOI: <10.3929/ethz-b-000293825> Abstract At the end of September, the Russian Parliament passed a law increasing the retirement age by five years to 60 for women and 65 for men. The aim was to move toward sustainable finances for the Russian Pension Fund, but the move proved extremely unpopular. In the light of considerable protests against the reform announced in June—just hours before the opening of the World Cup—the government was forced to react to popular discontent with a public debate and concessions. In the Shadow of the World Cup vides for its senior citizens: 1) the deficit in the pension This summer, the Russian government faced a dilemma fund, 2) demographic development and 3) low pen- that was difficult to resolve: For years, the Russian Pen- sion benefits. sion Fund (PFR) has been in deficit as the pension con- The core economic problem of the pension system tributions fall far short of covering current expenditures is the deficit of the Pension Fund. It amounts to about on old-age pensions. Therefore, when public attention one third of pension expenditure and must be covered was focused on the World Cup and public protests were year after year by subsidies from the federal state budget restricted for security reasons, Prime Minister Dmitry (see Table 1 on p. 7). The shortfall is problematic for Medvedev announced a painful solution to the prob- two reasons: On the one hand, financing from the fed- lem: Women should work eight years longer, men five. eral budget contradicts the principle of a contributory However, the project has led to public discontent pension system in which current old-age pensions are for at least three crucial reasons: First, pension reform paid out of current employees’ pension contributions (In threatens the social security of people aged 55–65. Sec- Russia, employers cover all of the pension contributions ond, due to corruption and nepotism, the political elite and employees do not contribute directly). On the other seems to lack the legitimacy to carry out reforms that hand—and this is the really serious problem—the sub- deeply affect people’s lives.. Third, the current pension sidies place a considerable burden on the federal state age of 55 years for women and 60 for men has enor- budget. Slightly more than one fifth of total federal gov- mous symbolic significance. For many people in Rus- ernment expenditures flow into the Pension Fund (see sia it seems to be a kind of last bastion for the defence Table 1 on p. 7). At a time when Russia’s economic devel- of social achievements from Soviet times. opment is stagnating (due to the low oil price, Western Accordingly, there was broad public opposition to the sanctions and structural problems) and the pressure to government’s plan to raise the retirement age—ranging consolidate the state budget is growing, these subsidies to from the systemic opposition parties in the Duma (in the Pension Fund are a prime target for austerity efforts. this case all parties except United Russia) to the trade Another problem of old-age provision in Russia is unions and the movement of Alexei Navalny. Regular the demographic situation. Russia’s society is ageing— demonstrations have taken place throughout the coun- and according to the UN World Population Prospect, try since July. In polls and elections, approval for both this trend will continue in the coming decades, even Vladimir Putin and United Russia fell after the reform if the birth rate has risen significantly in recent years plans were announced. thanks to financial incentives for families. Since 2010, The crucial question in early fall 2018 was therefore: the number of pensioners has risen by almost four mil- Will the government of Prime Minister Medvedev find lion, while the number of people employed has stagnated a way to pass the reform? for three years. There are only 1.7 employed people per pension recipient. Almost one third (30%) of all people Key Problems of the Russian Pension in Russia receive an old-age pension (see Table 2 on p. 7). System Although the trend towards ageing societies is putting In order to understand the rationale behind the planned pressure on pension systems worldwide, compared with increase in the retirement age, it is worth first taking many OECD countries, the ratio of employed people a look at the three central problems in how Russia pro- to pensioners in Russia is low. RUSSIAN ANALYTICAL DIGEST No. 225, 8 October 2018 3 Compounding these issues, the third fundamental retirement age in Russia. The aim, it said, was to create problem is the relatively low level of the pensions. The a sustainable financing basis for old-age provision and pension level for an average earner is currently around to increase pension payments. The first draft law con- one third (34%) of the former wage. This figure, too, is tained the following detailed provisions: low compared to many OECD countries. That’s why From 2019, the general retirement age should be almost one in four pensioners in Russia continues to gradually increased: to 65 for men by 2023 and to 63 work, especially in the early years of retirement (see for women by 2026; Table 2 on p. 7). Accordingly, for younger pensioners, • By analogy, the social pension should also be in particular, the old-age pension often serves as a kind increased from 60/65 to 65/70 (women/men) years. of basic income that must be topped up through gain- Social pensions are paid to people who, for what- ful employment. Inactive pensioners, on the other hand, ever reason, are not entitled to an insurance pension; are particularly at risk of poverty. • Some special arrangements to allow early retire- ment for certain categories of people should also be Pension Reforms of the Past increased by 8/5 (women/men) years, e.g. for rel- These core structural problems of pension provision in atives of deceased soldiers or indigenous peoples liv- Russia have existed for a long time. Over the past 20 ing in the North; years, they have led to numerous reforms aimed at sta- • Teachers, healthcare workers and artists have the bilising the pension system in the long term: right to early retirement after a certain number of • In 1990 the Pension Fund of the Russian Federation years of service. This right is to remain, but is to be was established as the administrative body of the postponed, gradually to eight years. For other groups contributory pay-as-you-go pension system; of people with the right to early retirement, e.g. from • In 2002, the pay-as-you-go pension system was security structures, there will be no change. extended to include a compulsory and a state-sup- This bill was adopted on 19 July after its first reading with ported voluntary funded pension scheme; the votes of the United Russia (UR) parliamentary group • Since 2014, funded pension schemes have been sus- (only one member of UR voted against). The members pended in order to use the contributions to finance of all other parliamentary groups present (KPRF, LDPR the pay-as-you-go pension (now extended to 2020); and A Just Russia) voted unanimously against. • In 2015, a new pension formula was introduced that takes into account years of working life employment, Protests wage level and real retirement age, and the early This Duma voting reflects the widespread unpopu- retirement system for various occupational groups larity of the pension reform plan among the popula- was reformed; tion. Surveys by opinion research institutes Levada and • In 2017, the retirement age for civil service employ- FOM show clearly: The vast majority of the population ees was raised to 63/65 (women/men). (between 80 and 90 percent) strongly oppose a higher However, the general retirement age of 55/60 (women/ retirement age. Within a few days after the Prime Min- men) years remained unchanged. Although experts from ister announced the reform plan, the approval ratings international organisations and Russian economists and for Dmitry Medvedev, Vladimir Putin, the Russian gov- pension experts repeatedly recommended raising the ernment and the party United Russia dropped by 10 to general retirement age, this was long considered a taboo 15 percent. What’s more, the political protest potential political issue. President Putin declared in 2005 that also rose sharply. In a survey conducted by the Levada the retirement age would not be raised as long as he Center, more than a third of the population said that was president.