Sisyphean increases: the real level of pensions in the country decreases for the 7th month in a row

Yelena Ivanova, Natalia Seibil

When the retirement age for both women and men increased by six months, the number of retirees fell by more than 300,000. The number of recipients of pensions would have decreased by the same amount last year, if not for the pandemic. Excess mortality in our country took away, first of all, the elderly. Because of this, the number of pensioners has decreased by 568 thousand people. In the first quarter of this year, the reduction was already 379 thousand people.

Why was the pension reform done? In order to reduce the number of pension recipients and ease the burden on the economy. However, recent observations, when the pensions of the rest are reduced by 1.27 million people, make even the greatest optimists wonder if everything is okay in the pension system, and why, when the number of "cooperative shareholders" falls, the rest get no more, what was logical, but less. It turns out that the amount of pensions does not really depend on the number of pensioners. This was confirmed by the professor of the Russian economic university named after G.V. Plekhanov Julia Finogenova. For each pensioner, the pension is calculated on the basis of a formula that includes such parameters as seniority, retirement age, salary before retirement and multiplying coefficients.

"It is not the number of pensioners that affects the size of the pension, but the input parameters", - says Yulia Finogenova, - Of course, this formula has a fixed part, insurance, accumulative. This is regulated by the state. The small amount that was accumulated by the time the funded pension was frozen, those pensioners who are now retiring are entitled to some one-time payment if the amount of accumulation is less than 5% of the pension, or extended over a certain number of years. When we talk about the pension structure, we cannot ignore the fact that someone has a funded pension. But 90% of retirees rely on insurance and fixed pensions".

The promotions, which Russian old people are so happy about, relate primarily to the fixed and insurance part. The Pension Fund gets them straight from the budget.

In general, the scheme of indexation or non-indexation of pensions is quite complicated, even economists admit. Some people do not receive any increase at all. But according to last year's decree, which defines national development goals, the government was set a goal of not reducing pensions in real terms, says Oksana Sinyavskaya, deputy director of the Institute for Social Policy at the Higher School of Economics. This requirement applies to insurance non-working pensioners. His government is doing it. The situation is different with the rest:

"Pensions are not growing, because we have a large proportion of people who continue to work in retirement. Their pensions are not indexed at all, and the average dynamics is given for all pensions. Secondly, in this average dynamics there are still social pensions, which are indexed only by the dynamics of the subsistence minimum, which in our country is growing according to the dynamics, which is weakly dependent on the price growth. The change in the subsistence level is associated with changes in the subsistence basket. It turned out to be less than the consumer price index. Therefore, the indexation was almost two times lower than that of insurance pensions this year".

Despite all the pre-election rhetoric of the Duma members, transfers from the budget to the Pension Fund are not that great. The main part of the PF budget is made up of insurance premiums, additional payments from the federal budget do not exceed 600 billion rubles. The Pension Fund's revenues for the past and this year have indeed sagged. Due to the pandemic, some sectors of the economy were under attack, so the salaries from which contributions are paid did not increase. But the state also decided to help the affected industries and cut their contributions to the Pension Fund. It turned out as always - we help some, we take away from others.

The fact that the incomes of the most vulnerable category of citizens are falling is not the fault of the Pension Fund, but the system itself, or rather, the economy, recalls Yulia Finogenova:

"The size of salaries affects the welfare. And here the pension system can do nothing to help the economy. It is a derivative of economics. If the economy does not work well, problems begin with collecting funds, with the size of the pension. A person earns little, therefore, has the right to receive little. Indeed, further there is an equalization between those who did not work and those who have worked all their lives".

In fact, Russian pensioners, as a percentage of their salaries, receive not much less than in the world. The replacement rate in Russia is about 40%, in other state pension systems it does not exceed 50%. Only our salary is completely different than in Europe. But economists say that the state pension system does not aim to provide a comfortable standard of living for senior citizens, it is protection from poverty in old age. The Russian pension system redistributes income very strongly. If the inequality in wages in the country is very high, then the inequality in pensions is very low. If people with low earnings retire, then the size of the pension is comparable to the size of their salary. For high-paid workers, the pensions they receive cannot even be compared with the lost earnings, even if they wanted to. Therefore, economists advise those who have money to take care of their old age themselves, buying real estate or saving money.

For pensions to grow, changes must take place outside the pension system, says Oksana Sinyavskaya:

"The main problem of our pension system is low earnings. With such salaries and a growing segment of precarious employment, not only informal, it is not only hidden income, but also various forms of self-employment, the number of payers of pension contributions is constantly decreasing in our country".

Despite this, the younger generations remain dependent on the state pension system. Since 2014, when the state froze pension savings, those who entered the labor market after 2014 have no savings at all. The state actually suspended the entire population on one pension system, and this is very dangerous, since the entire structure is very vulnerable, says Oksana Sinyavskaya.

- If we look at developed countries, there is a combination of sources of income. For example, everyone was attracted by Sweden with their decision on pensions, but in Sweden the state pension system is one of the incomes, which is complemented by highly developed professional pension systems plus a wide variety of private savings. Our people still depend on how much the state pays them, and how much their health will be enough to work.

It is not clear how the mandatory pension savings system will be transformed into a voluntary one. Oksana Sinyavskaya does not believe that the frozen storage part will ever be thawed. In addition, these savings were recognized as the property of the Russian Federation, since it was paid by employers, and therefore it was recognized as a type of tax. Yulia Finogenova agrees with Sinyavskaya - you can forget about the funded part of the pension:

“But nobody knows how the voluntary system will be implemented, that is, the transfer of money from the obligatory system to the voluntary system. That's the problem. I repeat: in 2019, the concept of a guaranteed pension plan was announced, and then everything died out. Now I don't even know what to think about and how it should look like. This should have been decided by the government in 2020. It's already 2021, and things are still there".

But one source of income for the pension system is a risky decision. Any crisis undermines its stability. Oksana Sinyavskaya and her colleagues make different assessments of the active longevity index and the quality of life of older people. As soon as a crisis occurs, be it the crisis of 2014-2015, or low indexation in 2016 or its complete absence, all assessments, both objective and subjective, instantly fall. People are not sure of the sufficiency of income and are not satisfied with life, activity is dropping, people stop traveling and go to theaters and movies:

"Decrease in income after the crisis of 2014, weak growth in 2018-2019 and now a pandemic - this does not give stability. Any shock becomes tangible for Russian families. We can see from research that when we talk to older people, the main fears are related to health. As long as their health is in order, people value their lives well, despite the low size of their pension. The main thing they say is that God forbid getting sick, and then no money will be enough, and the children do not know if they can help".

To understand how to reform the pension system, an open dialogue is needed between experts, officials, employers, trade unions, but as economists say, there is no such dialogue. It is necessary to look for a compromise, because it is necessary to move to a system that will not depend on only one salary. There are different options - from transferring pension payments to the budget to creating social insurance with a wider contribution base. Sinyavskaya proposes to create a Council on Pension Reform, by analogy with the National Council, which worked under the President in 2000, when the 2002 reform was planned. But while these models are being discussed by some scientists. There are no officials or employers in these discussions.