Indexation of Pensions Useless: Expert Criticizes Putin's Constitutional Idea

Indexation of Pensions Useless: Expert Criticizes Putin's Constitutional Idea


The indexation of pensions, which the government is waving as its main achievement as part of the pension system reform, turned out to be a useless idea at all. Moreover, for some reason President Vladimir Putin considers it the main factor that motivates senior Russian citizens to accept the changes.

In 2018, the pension reform caused a huge public uproar and mass discontent among Russians. Thousands of protesters took to the streets. In fact, the reform not only raised the retirement age, but also brought up the prospects for increasing average pension payments in the country. In order to promote the idea of a pension reform that would raise the retirement age by 5 years for everyone, the federal center decided to sugarcoat this “unpopular” decision for the residents. The authorities promised that with the beginning of the reform, there would be annual indexations of pensions in the country. Allegedly, this measure would increase benefits for pensioners to a level above inflation and gradually provide elderly Russians with decent living. However, the authorities did not go further than just making promises.

It is true that the Russian government indexes the pensions. The problem is that every time people increasingly associate the word ‘indexation’ with inaccuracies and errors of some kind, which some pensioners have already called “humiliating,” not with the real money equivalent of an increment in monthly insurance payments. Most likely, the Kremlin also understands these public sentiments. Perhaps, this is the reason why President Putin launched the procedure for reformatting the government as part of the constitutional reform in his sensational Address to the Federal Assembly and made an unexpected proposal to spell out the norm on indexation of pensions in the Constitution.

At first glance, it might seem the President has put forward a good social initiative. After all, if a standard of this kind is codified in the Constitution, no one can deprive pensioners of their right to annual indexation. Even if at this moment it is so ambiguous. However, now it turns out that indexation of pensions, which the government called almost its main achievement as part of the pension reform effort, and which, for some reason, the president views as the main factor motivating the Russians to accept the changes, has proved to be a useless idea.

According to Russian economist Tatiana Kulikova, in reality all the surcharges to the pensions in the form of indexation may be offset by inflation. According to her, the mandatory indexation of pensions of the Russians, which is planned to amend the Constitution, will not practically improve the lives of pensioners in Russia. Kulikova believes that the Constitution should stipulate the “indexation of inflation.” Only in this case this measure will be effective. Otherwise it is another propaganda maneuver.

Kulikova also recalled that back in 2015, inflation in Russia reached the level of 12%, while pensions were indexed by only 4%. As a result, the real standard of living of elderly people significantly decreased, despite the fact that the indexation was formally carried out for them by the authorities. Therefore, she believes that the residents should demand real growth of their pensions in real terms from the government and the President. The current average national pension of 15,000 rubles ($199.5) cannot provide an acceptable standard of living for the pensioners, added Kulikova.

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