Novye Izvestia analytics: why the growth of pensions loses out to inflation

Yelena Ivanova, Natalia Seibil

Rosstat published data for February and did not please Russian pensioners. At first glance, everything looks good. Pensions rose by an average of 835 rubles a month, and the average Russian pensioner received 15,762 rubles in February. But this money was not enough to compensate for the inflation rate. In February, money fell by 5.7%, in March, the trend continued - inflation was 5.8%. As a result, in March a pensioner will be able to buy goods by 100 rubles less than in January.

But last year, in real terms, pensions grew by 230 rubles a month, and it seemed that the government's strategy would work. Everything is in the past, and the crisis caused by the pandemic has caught up with the most vulnerable part of the population. What happened?

Prices for different products and services grow unevenly, and food inflation is well above average. While the overall inflation rate was 5.8%, prices for food products increased by more than 8 percent on average. The spending structure of the poor, to whom the retirees belong, is such that people spend half of their income on food. Some experts believe that this figure is even higher - it reaches 70%.

This year, according to the main statistical office, cereals have risen in price by 21.1%, pasta - by 13.3%, chicken - by 13%, sunflower oil - by 26.6%, eggs - by 28.2%, vegetables - by 16.6%. Average food inflation exceeded 8%.

- For a pensioner, this is not a trifle, it is one and a half to two percent of his income every year. And taking into account the fact that he is poor, then inflation for him is not 5%, which is what increases in pensions are guided by, but 8%, explains academician Abel Aganbegyan.

Social injustice manifests itself not only in what the rich can afford, but also in how this affects their purchasing power. Economists say that wealthy citizens spend less than 10% on food. The rich are more likely to buy foreign goods, and inflation is much lower on them. As in many other things, the poor suffer, says economist Igor Nikolayev:

- Because food inflation outstrips general inflation, the most vulnerable people suffer. For them, the general inflation is also higher due to the fact that their structure of the consumer basket is such, where half is food, therefore inflation is higher. For the rich, inflation is much lower.

The main argument of the authors of the pension reform was that the state will always index pensions at a percentage higher than inflation. This was a promise from the authorities in exchange for raising the retirement age. Until 2020, the government could keep a promise made to its most loyal segment of society. For 2021, everything looked decent: inflation should not exceed 3.7% , and the indexation of pensions is planned for its basic part by 6.3% , and social pensions will be increased by 3.6 %. But it didn't go that way. Economist Igor Nikolayev says:

- This year the situation is such that there will be no 3.7% annual inflation. Now, in mid-March, it was 5.8% in annual terms. Planned indexing - 6.3%. Food inflation is even higher. That is, now the planned food inflation is higher than the planned indexation. At the end of 2021, it will be very difficult for the authorities to fulfill the promise that indexation will outstrip inflation.

The depreciation of pensions occurs not only due to the fact that prices for all goods and services are growing, but also because the Russian national currency is getting cheaper. Judge for yourself: since 2013, the pre-Crimean year, pensions in Russia have increased by 7200 rubles, or by 72% - in rubles. If you recalculate them in dollars, the picture will change. If retirees had received this increase 8 years ago, it would have amounted to $ 307 per month, but now it is no more than $ 200.

Academician Aganbegyan says that Russian pensions do not meet the international standards set forth in the documents that bear the signature of Russia:

- There is an international labor organization at the UN. According to the rules of the ILO, the size of the pension should be 40-60% of the average salary. And our pension is 30% of the average salary. Moreover, our salary, from which a pension of 30% is calculated, is an incomplete salary. 25% of salaries in Russia, unlike other countries, are issued in envelopes. And this happens for one reason - because you have to pay from the salary fund not only tax 13-15% of the salary, but also 30% of the salary fund you have to pay if you are a company. We are talking about social taxes on pensions, health care, that is, you have to pay half of the salary fund in taxes. And it is beneficial for you not to register some of the people at all. This is the so-called informal employment. Of the 75 million people employed, this is 20 million. This is where the essential things are.

The proponents of the pension reform disagree with this formulation of the question. No state pension system in any country in the world is able to provide a person with a decent replacement rate and pay him 70% of his salary in the form of a pension, says Yulia Finogenova, Associate Professor of the Department of Finance and Prices at the Russian University of Economics :

- Therefore, in Russia such a situation occurs: the state pension is not obliged to replace 70% of the earnings that a person received before retirement. 30% - 40% - maximum average. It all depends on the country, the level of economic development. In Russia, it is now around 30%, we are walking along the lower border, but we comply with international norms and standards. But for some reason, pensioners believe, and some economists believe that the Russian state pension system should compensate 70%. But it never will. A decent replacement rate can only be achieved through private savings.

Yulia Finogenova says that the pension reform will bring the budget 400 to 500 billion rubles a year in the medium term by raising the retirement age. But even this will not be enough, therefore it is necessary to introduce mechanisms into the pension system when citizens voluntarily bring money to accumulation institutions to increase pensions through private accumulation. But the funded part of the pension was already there, and what happened to it since 2014? Without asking the "storage devices" themselves, they froze it. From January 1, 2021, the funded part was again frozen - for three years. The state does not hide that the budget will save almost 670 billion rubles on this simple operation.

Igor Nikolaev considers the pension reform to be a mistake. Raising the retirement age is not a reform. Reform is a change in the system, but it has not changed in any way. The National Welfare Fund was created from the outset to ensure the stability of the pension system. As of March 1, 2021, it contains more than 13.5 trillion rubles. Why did we create and accumulate it then, the economist asks:

- I calculated how much money the state will save on raising the retirement age until 2028, for the same transition period, or how much people will lose, because the state is saving, but people are losing - this is the same amount. Over these 10 years, we are talking about 10.2 trillion rubles. In the NWF on March 1, more than 13.5 trillion. You will save 10 trillion, people will lose 10 trillion, but you have more than 13.5 trillion as of March 1. And How? That is, the most important argument is not valid.

Obviously, the national wealth fund is being used for some other, more important purpose than pensions.

- It is believed that, I do not want to say that the pension system is not an important thing, but there are strategically important tasks to support the economy, small and medium-sized enterprises, social problems that need to be addressed if there is a drop in oil and gas revenues, this fund will be used. The main goal of the fund is to provide support in real crisis situations. I do not regard the Russian pension system as in crisis, because officially the size of the pension reflects those norms, the subsistence minimum of a pensioner, which have been established, - says Yulia Finogenova.

The pandemic has had an impact on life expectancy in Russia. In 2019, the average life expectancy was 73.6 years. Over the year, it decreased by two years to 71.1 years, says Rosstat. But there is an even more important indicator - healthy life expectancy. In Russia, it was 63 years, after the pandemic, the healthy life expectancy dropped to 60 years.

- This is equal to the retirement age of women and 5 years less than the retirement age of men in Russia. This happened after the adoption of Putin's amendments. And we are the only country in the major countries where healthy life expectancy is below retirement age. Abroad, the highest age is 67 years, and even then not in all countries, in many it is 65 years old, and a healthy life expectancy is 72 years. Therefore, our pensioners are more than half sick, judging by the statistics of healthy life expectancy. The rest are unhealthy, and how will they work? - asks Aganbegyan.

Academician Aganbegyan agrees with Igor Nikolaev and calls the pension reform a tragic mistake. It is probably necessary to raise the retirement age in principle, says Nikolayev, but not during these years and not against the background of falling real disposable incomes of the population:

- This decision must be taken when the economy is growing steadily, the real incomes of the population are growing. This decision must be made proactively, not so that everything starts from next year. And how is it done normally? A few years after the announcement, the transition begins. Therefore, I assess this decision as wrong and untimely.

To protect pensioners, pensions need to be indexed according to food inflation - not by 6.1%, but by 8%, says Aganbegyan, but who thinks about it?

Yulia Finogenova also does not see the government's resource. It will appear only in one case - if oil prices start going up, and if GDP grows. There are forecasts that in the next year or two, energy prices will stabilize, and then growth is possible:

- If this happens, and a new crisis, the third wave of the pandemic, some other phenomena related to the Biden administration, we do not know the future, but if everything goes well, there is a chance that the indexing norms may be revised, or additional payments. There is a chance that this will be done.

Blessed is he who believes...