SOCIETY
The Kremlin, in Need of Workers, Calls on Pensioners
November 11, 2024
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Vladimir RuvinskyJournalist
Journalist Vladimir Ruvinsky argues that amid the war in Ukraine and the labor shortage in Russia, the Russian government has shifted its approach to pensioners – they are increasingly on their own to provide for what Putin calls a “decent old age.”
The original text in Russian was published in the Moscow Times. A slightly shortened version is being republished here with the author’s permission.
A poster of Russia's State Pension Fund informing working pensioners about indexation of their pensions from February 1, 2025. Source: VK
In the third year of the war with Ukraine, average real wages in Russia, i.e., taking into account inflation, have risen considerably, yet pensions have not, and are even falling. In January-September 2024, real pensions, according to official, Rosstat data, were down 0.6% versus the same period in 2023.
Declining purchasing power of pensions
The government indexed pensions for 2024 by 7.5% (based on the Rosstat-calculated inflation rate for 2023). The problem is that consumer prices have risen even faster this year. This means that the actual ability for Russians to buy something with their pensions is declining on average – and for many it has collapsed altogether.
A similar indexation is planned for next year too. In October, the government, having deliberated, decided to index pensions by 7.3% in 2025. “The size of the increase [will be] the level of inflation that materializes this year,” explained Finance Minister Anton Siluanov. But the government’s estimate is lagging the Central Bank’s expectations, which stand at 8.0-8.5% inflation in 2024.
The rise in personal expenditures is likely to be even higher. The private research outfit ROMIR reports that prices for fast-moving consumer goods have gone up 12.3% in January-September 2024, with official inflation accelerating in October.
The government is certainly aware of this, but it is still indexing pensions below the inflation rate (this happened in 2022, when real pensions fell 0.9% year over year).
Declining purchasing power of pensions
The government indexed pensions for 2024 by 7.5% (based on the Rosstat-calculated inflation rate for 2023). The problem is that consumer prices have risen even faster this year. This means that the actual ability for Russians to buy something with their pensions is declining on average – and for many it has collapsed altogether.
A similar indexation is planned for next year too. In October, the government, having deliberated, decided to index pensions by 7.3% in 2025. “The size of the increase [will be] the level of inflation that materializes this year,” explained Finance Minister Anton Siluanov. But the government’s estimate is lagging the Central Bank’s expectations, which stand at 8.0-8.5% inflation in 2024.
The rise in personal expenditures is likely to be even higher. The private research outfit ROMIR reports that prices for fast-moving consumer goods have gone up 12.3% in January-September 2024, with official inflation accelerating in October.
The government is certainly aware of this, but it is still indexing pensions below the inflation rate (this happened in 2022, when real pensions fell 0.9% year over year).
“Meanwhile, there has been a noticeable increase in social assistance spending: for families with children, the poor, the military – everyone but nonmilitary pensioners (former armed forces personnel receiving pensions are doing fine).”
It seems that support for this segment of the population has been put on the backburner by the government.
But why did the state actively raise pensions previously? One reason, according to an economist specializing in the area, was to take pensioners out of the labor market. Now, on the contrary, they want pensioners to work.In other words, the state’s concept of “supporting pensioners” seems to have changed.
Pensioners as an electorate
In 2000, the average pension in Russia was RUB 694 a month, less than $1 a day and below the World Bank’s extreme poverty line. All Russians who depended on the state for their livelihood were poor, but there were many pensioners: 38.4 million people, making up 44% of Russia’s 87.2 million working-age population at the time. Pensioners did what they could, selling whatever they could, growing food at their dachas, etc.
Vladimir Putin began his rule a quarter of a century ago, in particular, by promising to focus on improving the lot of pensioners. In 2004, while running for a second presidential term, he explicitly stated that he saw “guaranteeing a decent old age” as a “key task of the state.” Putin learned firsthand that pensioners are an important electorate that must be controlled to maintain power and get the desired predictable results in elections. This happened during the so-called monetization of benefits in 2005, when the government finally did away with the social support system that had broken down in the late USSR.
Russians responded to the reform with mass protests in dozens of major cities, pensioners being the driving force. Putin put the blame for the political failure on the government (Mikhail Fradkov was PM) and regional leaders. But his own approval ratings still fell to all-time lows, and the media even began to discuss his resignation.
When the protests eventually died down, Putin stayed away from the issue of pension system reform and generally tried not to irritate pensioners. “I want to draw your attention to the fact that I am against raising the retirement age. And while I am president, such a decision will not be taken,” he said in 2005. His successor as president, Dmitri Medvedev, picked up the mantra in 2008 about a pension system that would provide Russians with a “decent old age.”
A decade later, in his fourth presidential term, Putin finally decided to raise the retirement age. He made Medvedev, then PM, announce the extremely unpopular measure. He left for himself the role of consoling arbiter, promising to “provide all-round support to members of the older generation” by “raising pensions and indexing them regularly so that they outpace inflation” and “reducing the gap between the size of pensions and pre-retirement wages.” Putin did not fulfill these promises.
War and pensions
The meaning of a “decent pension” and “decent old age” in the speeches of Putin or Medvedev generally remained vague – how much this entailed in money and benefits, the leaders of Russia preferred not to specify.
The International Labor Organization (ILO) recommends that a decent pension should be at least 40% of previous earnings. This so-called “replacement rate” is the main function of a pension: to compensate for income lost as a result of retirement.
In ILO Convention No 128, from 1967, the minimum replacement rate is set at 45% for a married pensioner. The recommended level is 65-70%. This was the target given in 2018 by Alexei Kudrin, then the head of the Accounts Chamber, when he was defending raising the retirement age in the Duma.
What did Russians get in the end? Whereas it was expected that the slide in the replacement rate would slow from 32.8% in 2018 to 32.1% by 2030 (assuming GDP growth of 1.5% per year), it fell to 29.8% in 2019 before nosediving amid the war in Ukraine to 26% in 2023 and 25% and lower in 2024.
But why did the state actively raise pensions previously? One reason, according to an economist specializing in the area, was to take pensioners out of the labor market. Now, on the contrary, they want pensioners to work.In other words, the state’s concept of “supporting pensioners” seems to have changed.
Pensioners as an electorate
In 2000, the average pension in Russia was RUB 694 a month, less than $1 a day and below the World Bank’s extreme poverty line. All Russians who depended on the state for their livelihood were poor, but there were many pensioners: 38.4 million people, making up 44% of Russia’s 87.2 million working-age population at the time. Pensioners did what they could, selling whatever they could, growing food at their dachas, etc.
Vladimir Putin began his rule a quarter of a century ago, in particular, by promising to focus on improving the lot of pensioners. In 2004, while running for a second presidential term, he explicitly stated that he saw “guaranteeing a decent old age” as a “key task of the state.” Putin learned firsthand that pensioners are an important electorate that must be controlled to maintain power and get the desired predictable results in elections. This happened during the so-called monetization of benefits in 2005, when the government finally did away with the social support system that had broken down in the late USSR.
Russians responded to the reform with mass protests in dozens of major cities, pensioners being the driving force. Putin put the blame for the political failure on the government (Mikhail Fradkov was PM) and regional leaders. But his own approval ratings still fell to all-time lows, and the media even began to discuss his resignation.
When the protests eventually died down, Putin stayed away from the issue of pension system reform and generally tried not to irritate pensioners. “I want to draw your attention to the fact that I am against raising the retirement age. And while I am president, such a decision will not be taken,” he said in 2005. His successor as president, Dmitri Medvedev, picked up the mantra in 2008 about a pension system that would provide Russians with a “decent old age.”
A decade later, in his fourth presidential term, Putin finally decided to raise the retirement age. He made Medvedev, then PM, announce the extremely unpopular measure. He left for himself the role of consoling arbiter, promising to “provide all-round support to members of the older generation” by “raising pensions and indexing them regularly so that they outpace inflation” and “reducing the gap between the size of pensions and pre-retirement wages.” Putin did not fulfill these promises.
War and pensions
The meaning of a “decent pension” and “decent old age” in the speeches of Putin or Medvedev generally remained vague – how much this entailed in money and benefits, the leaders of Russia preferred not to specify.
The International Labor Organization (ILO) recommends that a decent pension should be at least 40% of previous earnings. This so-called “replacement rate” is the main function of a pension: to compensate for income lost as a result of retirement.
In ILO Convention No 128, from 1967, the minimum replacement rate is set at 45% for a married pensioner. The recommended level is 65-70%. This was the target given in 2018 by Alexei Kudrin, then the head of the Accounts Chamber, when he was defending raising the retirement age in the Duma.
What did Russians get in the end? Whereas it was expected that the slide in the replacement rate would slow from 32.8% in 2018 to 32.1% by 2030 (assuming GDP growth of 1.5% per year), it fell to 29.8% in 2019 before nosediving amid the war in Ukraine to 26% in 2023 and 25% and lower in 2024.
“The concept of a ‘decent old age’ has been tossed aside, largely owing to unrestrained growth of wages in the military-industrial complex and the overall growth of the war economy.”
The retirement age hike ultimately reduced the number of pensioners – from 42.7 million in 2020 to 41.0 million in 2024, which is still a whopping 54% of the working-age population (this does not include about 2.7 million former armed forces personnel receiving a pension, whose numbers are growing).
The government benefited from the decreased burden on the pension fund, from which nonmilitary pensions are paid.Pensioners got the short end of the stick.
Pension system changes
In 2014, workers’ privately managed pension funds were used to plug holes in the budget caused by spending on the annexed Crimea, with the government “freezing” these contributions. Thus, the Kremlin initiated its restructuring of the pension system. After the war began in 2022, Putin never returned to what he had said in 2001 that, “we need to move over to a comprehensible individual pension savings system. People should be sure that each ruble they earn will have an impact on the size of the pension they receive later.”
This summer, Putin revoked his own 2015 decision to stop indexing pensions for those who have reached retirement age but continue to work. (The government thus saved on pension payments.) Now, the 7.8 million officially working pensioners will have their pensions indexed.
The Kremlin was prompted to backtrack not by concern for pensioners, especially since it is now trying to cut spending wherever possible to cover war expenses and has no money for indexation above the inflation rate. Rather, this is evidence of a change relative to the stated goals of the 2018 pension reform.
A new formula for a ‘decent old age’
The reinstated indexation for working pensioners essentially means that the state no longer needs nonworking pensioners.
The government benefited from the decreased burden on the pension fund, from which nonmilitary pensions are paid.Pensioners got the short end of the stick.
Pension system changes
In 2014, workers’ privately managed pension funds were used to plug holes in the budget caused by spending on the annexed Crimea, with the government “freezing” these contributions. Thus, the Kremlin initiated its restructuring of the pension system. After the war began in 2022, Putin never returned to what he had said in 2001 that, “we need to move over to a comprehensible individual pension savings system. People should be sure that each ruble they earn will have an impact on the size of the pension they receive later.”
This summer, Putin revoked his own 2015 decision to stop indexing pensions for those who have reached retirement age but continue to work. (The government thus saved on pension payments.) Now, the 7.8 million officially working pensioners will have their pensions indexed.
The Kremlin was prompted to backtrack not by concern for pensioners, especially since it is now trying to cut spending wherever possible to cover war expenses and has no money for indexation above the inflation rate. Rather, this is evidence of a change relative to the stated goals of the 2018 pension reform.
A new formula for a ‘decent old age’
The reinstated indexation for working pensioners essentially means that the state no longer needs nonworking pensioners.
“A pensioner is now on his own to provide for a ‘decent old age’ by supplementing his small pension – before this was often the case in practice, but now it’s official.”
Pyaterochka grocery store chain. According to some reports, the retail sector, short over a million people, is welcoming pensioners who want to supplement their pensions. Source: Wiki Commons
In addition, a working pensioner is a solution to the major labor shortage in the country: there are not enough workers in the labor market, so pensioners are being nudged to go back to work. The state of the economy is such that pensioners are not opposed – it does not take them long to find a job.
The Russians with whom I was able to discuss this topic confirm that they see more and more working pensioners. To the point that 70-year-old security guards are patrolling supermarkets. Pensioners are working in the service sector, retail, schools and cultural institutions – in these areas, the number of vacancies for specialists over 55 is growing rapidly. They have even been hired for manufacturing jobs.
This shift in the state’s concept of “supporting pensioners” has become possible in many ways because of the declining importance of pensioners as an electorate. All the big plebiscites in Russia have taken place, the Constitution has been amended for Putin and he has been reelected until 2030 and probably 2036.
The new concept looks sustainable – shortages in the Russian labor market will persist for a decade or more. At least until 2030, approximately 500,000 workers will drop out of Russia’s workforce every year. Employers will be willing to hire older workers because their lower productivity is offset by savings on pay – pensioners are cheaper.
As at the beginning of Putin’s rule, pensioners in Russia will have to supplement their pensions. On the other hand, many pensioners will be only too happy about the new opportunities to work, and perhaps this will only bolster their loyalty to Putin.
The Russians with whom I was able to discuss this topic confirm that they see more and more working pensioners. To the point that 70-year-old security guards are patrolling supermarkets. Pensioners are working in the service sector, retail, schools and cultural institutions – in these areas, the number of vacancies for specialists over 55 is growing rapidly. They have even been hired for manufacturing jobs.
This shift in the state’s concept of “supporting pensioners” has become possible in many ways because of the declining importance of pensioners as an electorate. All the big plebiscites in Russia have taken place, the Constitution has been amended for Putin and he has been reelected until 2030 and probably 2036.
The new concept looks sustainable – shortages in the Russian labor market will persist for a decade or more. At least until 2030, approximately 500,000 workers will drop out of Russia’s workforce every year. Employers will be willing to hire older workers because their lower productivity is offset by savings on pay – pensioners are cheaper.
As at the beginning of Putin’s rule, pensioners in Russia will have to supplement their pensions. On the other hand, many pensioners will be only too happy about the new opportunities to work, and perhaps this will only bolster their loyalty to Putin.
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