Already, the Pension Fund is insisting
on just such an approach, promoting the idea that “the intended purpose of insurance pensions is to provide livelihood to a citizen who, due to… old age and disability, is unable to work and has lost his earnings.” When pensions finally turn into allowances, their size will cease (or almost cease) to depend on how long a person worked and how much income taxes and social contributions he paid as a percentage of earnings. It is then that the long-term savings that the Finance Ministry is ready to cofinance will be needed.
There is no doubt that Finance Minister Anton Siluanov will make every effort to hurriedly push through the new pension reform. Whereas before the war it was a way to cut the “Gordian knot” that had growing more tangled over the years, now it is a vital necessity that will provide a chance to resolve, most importantly, present problems. Note that the voluntary pension savings can be spent only upon reaching retirement age. In addition, the lion’s share of the money set aside by people will likely be invested in government debt. If you transfer a “real” RUB 400,000 this year into your individual “box,” you are really extending a loan to the Finance Ministry, and in return will receive a RUB 52,000 tax deduction next year, plus a “virtual” RUB 36,000 of interest on your account balance.
To exchange RUB 400,000 that you can spend at any time for RUB 52,000 only in a year, together with an IOU for RUB 436,000 in 20-30 years (depending on how long you have before retirement), you must have optimism bordering on insanity. Especially now, given the war and international sanctions, when the political and economic risks in Russia have skyrocketed, and people have a planning horizon of months, if not days.The war changed everything
The pension reform that the Finance Ministry and the Central Bank are trying to launch will not radically change anything. Time has been wasted. And the problem is not so much the unpredictable performance of even medium-term investments, without which the whole scheme does not make sense.
At the beginning of the year, Rosstat disclosed
the last population census (experts have many questions about it, but it is the only data we have), which was carried out in 2021, before the war. According to the data, about 13% of the population – approximately 19 million people – refused to indicate the source of the income on which they live, in line with estimates
of the size of the shadow economy. Another 45% (about 58 million) said they lived on their salaries. A third noted among their sources of income social payments from the state, i.e. pensions and benefits. This is more than 42 million people. Moreover, for 31 million of them, social payments were their main source of income. If you add about 30 million dependents here (including minors), the balance is no longer in favor of workers.
There is no official data on Russian military losses in Ukraine yet. Just as there are no statistics on how many Russians left the country after the start of the war and the announcement of the partial mobilization. However, there is no doubt that in both cases it was mostly working-age men, including from the smallest generation – men now 20-24 years old. Before the war, the demographic crisis was smoothed out by migrants. The flows, having slowed during the pandemic, swelled back last year. The influx of refugees from the occupied regions of Ukraine has not boosted the Russian labor market, however, since most of them are pensioners and women with children. The situation is the same with the population in the four Ukrainian regions annexed by Russia, where the able-bodied male population was either mobilized by one of the sides or fled westward by hook or by crook.
Recall that the previous attempt
to switch from a pay-as-you-go to a capital-funded pension system – made by a team of reformers back in 2001, in a completely different demographic situation – failed. The authorities attributed the failure to an unbearable burden on the “transitional” generation, which would have to save for their own pensions while also providing for previous generations. Thus, people were not able to build real individual pension savings, despite the rapid growth of the economy in the 2000s.
In 2014, after the annexation of Crimea, the government urgently needed money, and individual pension savings for the year (as well as for all subsequent years) were essentially confiscated. This was the end of the reform. The chances of the current attempt at pension reform succeeding are much lower.
There is another serious problem that makes another reform attempt senseless: the current structure of the Russian economy. Workers are different: there are those who produce things and provide the budget with taxes have to support not only children and pensioners, and there are deputies, officials, the army, law enforcement and many more state employees, including spies and propagandists. According to the RANEPA Laboratory
for the Analysis of Institutions and Financial Markets, the share of public administration in GDP in 2000-20 more than doubled, from 7.1% to 14.6%, while the public sector as a whole surpassed 50% of the Russian economy in 2018. The war has meant not only a multifold increase in military spending and defense orders, but also an acute shortage of labor in the economy. After the start of the mobilization, a number of Russia’s regions were forced to announce “labor mobilization
,” sending college and university students to operate machines and run offices.