Money for pension

Phantom of the pension reform once again wanders in the offices of officials of the Russian government. Prime Minister Dmitry Medvedev, already now collects variants of pension reform from different departments. What are the causes which impel the Russian government to return to such a sticky, unpleasant and even dangerous thing, like pension reform?

1. The growing deficit of the Pension Fund, for covering of which is required more and more money. Inability to raise more social contributions, as they simply will stop paying.
2. The large number of beneficiaries, who on average retire at an age less than 55 years.
3. Lack of motivation among citizens to put off part of the funds from their own wages to the funded pension system.

The Finance Ministry and the Health Ministry have submitted their suggestions for the pension reform yet in the spring. Thus, the Ministry of Finance proposed to raise the retirement age, while the Health Ministry has proposed to reduce the number of benefit recipients - those people who retire earlier than other people.
Now we have yet another offer from the Ministry of Economic Development, which proposed the reform process and the efficiency of collection of insurance fees. According to this proposal 2 major components of the existing pension system should be retained - distributive and accumulative, which are formed by insurance contributions and transfers received from the federal budget. While distributive component of pensions should be immediately reformed.

Here are the arguments of Ministry of Economic Development:

Subsidies from the budget, directed to cover the deficit of Pension Fund, in 2013 will rise by 1.4 times, for a total of $ 1.2 trillion rubles. Actually, this means that the Russian budget pays pensions of quarters of Russians. By 2030, demographic crisis will amplified, we can expect an increase in the number of pensioners by 9.2 million people. And the number of employees, on the contrary, will be reduced by 10.7 million people. This means that due to the budget it will already be impossible to pay all pensions.
Therefore the Ministry of Economic Development proposed to fix in the budget the maximum limit of funds which may be directed to cover the deficit of the Pension Fund. In addition, the Ministry of Economic Development has formulated a number of measures to modernize the pension system.

1. Improvement of tariff policy. Ministry of Economic Development proposes to reduce insurance contributions from 30% to 28%. This should encourage employers to derive wages of their employees from the shadow. For employers who pay their workers high salaries will be offered benefit - fixed level of wage threshold, after which they will pay the fee at the rate of 5%. Now, this level is located at 512 thousand rubles. And the level of contributions is 10%.
2. Only 2% of these 5% of contributions should finance the employers, the remaining 3% should lie on the shoulders of the worker on "quasi-voluntary basis" by which an employee may refuse to pay the fees, but if the employee is lazy and will not write the statement, then he will have to pay, as they say, the "by default". The officials believe that the Russians too lazy to write statements and will pay a "default." Experts hold, however, the opposite view, that the Russians will be greedy and will refuse to give a part of their salary to a funded pension system.
3. The reform of early retirement. Ministry of Economic Development believes that it should be introduced an additional contribution for those employers, whose employees are working in harmful conditions. Contribution must be sensitive enough to stimulate to reduce number of workplaces with harmful working conditions and to improve the working conditions themselves. Proposed to define additional contribution of 3.2%.
4. Minimal length of service to receive the pension should be 15 years, not as it is now - 5 years. This should motivate the population, especially those who work in the informal sector of economy to participate in the compulsory pension insurance.
5. Stimulate the population to later retirement. According to this proposal, if the employee decides to postpone his retirement, then every extra year of insurance experience will increase the amount of his pension, which will be calculated taking into account his salaries and inflation.
6. An increase of expected period of payment of pension up to 21.4 years, which will correspond the expected number of years, which our citizens will live after retirement. This number will be used to calculate the insurance part of the pension.

The proposal of the Health Ministry is to form a three-tier system, which will consist of:

• insurance or labor pension - state system, which is filled with insurance contributions;
• professional or corporate pensions, which is compiled for individual organizations or even entire industries from additional payment of workers and employers on the basis of the signed collective agreement or compiled by labor unions tariff agreements;
• accumulative or private pension - is voluntary contributions of Russians in private pension funds. To stimulate personal savings the state should continue to co-finance the program from its own budget, and provide a variety of tax breaks.

All these measures should provide the employee, who for at least 30 years contributed in his future retirement, pension provision with replacement rate of 70-80% from his salary.
In the next 10 years, increasing of the retirement age is impossible, namely for demographic reasons, as Russians still are living not enough for this step. People must be stimulated to a later retirement, not by increasing the retirement age, but due to more stringent requirements for work experience. Ministry of Economic Development has offered to pay the maximum pension to men if they have a work experience of 45 years, and to women if they have a work experience of 40 years.
The new pension formula of the Health Ministry is based on the principle: "individual coefficient of pensioner", whereas now is applied the principle of "bank account", ie - how much money is in your account, such a pension you will have.
Ministry of Finance, as well as the authors of the "2020 Strategy", offers to gradually increase the retirement age up to 63 years for both men and women. The very demographic situation in the country forces the government to go namely to this step.
Moreover, if a person after 63 years has less than 15 years of work experience, then he will have to work a few years more, because in this case retirement for him will be moved. And vice versa, if the experience will be higher, then the pension will be increased. The maximum pension will be assigned to those who have work experience of 30 years. It is proposed to introduce a special coefficients for calculating of pensions, depending on length of service.
In order not to devastate pension fund, the Finance Ministry proposes to deprive the pensions (even the basic pensions) those citizens, who have expressed the desire to work after 63 years, while receiving a pension. If this option is perceived as too radical, then can be considered such variant: if earnings of the pensioner will exceed a certain amount, then pension payments will be reduced. The International Labour Organization allows this option.