Russia Ridding Itself of Pensioners

Russia Ridding Itself of Pensioners
Russia’s Pension Fund is reporting on its indisputable victories as regards the reduction of spending. The figures are impressive. In 2019 alone, the number of pensioners went down by 355,000 persons, and a further reduction by 800,000 persons is expected in 2020, making it possible to raise the pensions to the unprecedented 18,290 rubles (around $ 287) per month.

The Pension Fund of Russia (PFR) has published the calculations showing that the number of Russian pensioners decreased by about 355,000 people by the end of last year. In any case, it was this figure the PFR chairman, Anton Drozdov, revealed in an interview with the Rossiyskaya Gazeta official daily.

While saying this, Drozdov was highly optimistic -- 800,000 people as a minimum will not retire in 2020, and this will naturally reduce the cost of payments to them from the PFR. And, of course, this will help increase the pensions themselves, Drozdov said confidently. He estimates that by 2022 an average pension in Russia will go up 18.26% versus 2019 and will amount to 18,290 rubles (around $ 287 at the current exchange rate), and possibly even more.

"In real terms, based on the forecast of the Ministry of Economic Development, pensions will increase by 2.5%, 3%, 2% and 1.3% respectively in the period of 2019 to 2022," Drozdov said. "If inflation is below the forecast figures, pensions will grow even higher in real terms. At the same time, people who have reached the age of 80 will automatically have their pensions marked up by the amount of the fixed payment, which is 5,600 in 2020."

Drozdov also recalled the indexation of pensions by 6.6% as of January 1, 2020. As a result, old-age insurance payments will increase by at least 1,000 rubles, while their average size will total 16,500 rubles. According to preliminary estimates, the indexation will embrace more than 30 million Russians. The PFR also made a reminder that changes in the size of payments depend on how big a person's pension is. If he or she received 15,400 rubles in 2019, the indexation should increase the amount to be paid not to 16,000 rubles.

The country ran last year’s budget with a surplus, and this year, according to the governments' forecasts, there will also be a surplus, Sergei Zvenigorodsky, an independent pension consultant told  The PFR also reported a reduction in the number of people who are to retire after the increase of retirement age, which gives additional savings to the very budget for the short term.

The national economy is growing; the size of gold and foreign exchange reserves, including physical gold, is also increasing, and the debt burden allows the servicing of loans and development. According to Sergei Zvenigorodsky, the implementation of national projects, which should yield positive results in the next few years, also enables the government to make a forecast for performance of budget obligations in full.

Along with it, the expert draws attention to the fact that an 18 per cent increase in pensions will make up an aggregate compensation for three years, and the distribution by the year already looks like a normal indexation of pensions, as in other periods of time. The increase in payments by 6% with its amount of 10,000 rubles to 20,000 rubles will be noticeable, but not significant. At the same time, hundreds of billions of rubles a year are allocated to solve the budget problem, which again puts us all in the face of a difficult question: the state meets the standards, but the pension remains small, and so what is to be done?

Various financial instruments and reforms of the pension plan make it possible to pay decent pensions to about 15% of the population, while the rest are forced to rely on the size of indexations, says Zvenigorodsky. Unfortunately, only such increases are available to most citizens, and so the allocation of additional funds is always welcome, but not enough.

The problem is, pensions are now at the forefront of the social agenda, says Irina Kapitanova, a member of presidium of the OPORA Russia association of small and medium-sized business. After the recent increase in the retirement age, a decision was taken to spell out the indexation of accruals in the Constitution.

"Pensioners are the mainstay of support for the regime, the most loyal voters," Kapitanova said in an interview "In terms of percentage of the population, too. No matter how angrily citizens rally in the capital, the babushkas from the state farm named after the XXII party Congress will still come to the polls. And will vote for stability. From their standpoint, this is a stable pension. And if it is indexed, it is stability squared.

"The country's leadership still has strong memories of blockages of the Leningrad Highway in response to the monetization of benefits,” recalls Kapitanova. “You can't solve this with the help of Rosgvardiya homeguard, so pensions are sacred.”  They will only keep increasing further, although there are not so many opportunities for this. For the budget, this is an insignificant expense in the situation that has emerged after the retirement age increase, but the income in the form of social capital is truly invaluable during the difficult period of the transfer of power.

As regards the economic aspect, it really makes no sense to evaluate the indexation of pensions, since this is an exclusively political issue in Russia, Kapitanova believes.

Meanwhile, independent analyst Dmitry Adamidov indicates that after the President announced an increase in the retirement age, any reports regarding the PFR predictably disappeared from the media – as they say, so as not to provoke discontent. But now, when some time has passed and the acute  indignation has subsided, the head of the PFR decided to start correcting the situation and made a range of encouraging statements.

However, the expert states that there are no resources for truly positive events, and the head of the PFR himself is mostly famous for his salary, not for any achievements in the field of pension provision for the population, yet there is nothing to do because noblesse oblige. The forecast of the Ministry of Economic Development, which regularly fails to come true, especially in terms of inflation (the ministry systematically understates it), was mentioned haphazardly, but again the head of the Pension Fund cannot realy on anything else.

In general, notes Adamidov, the event has been held, formalities have been observed, and then both the population and the top officials of the PFR are quietly going about their business, since everyone live in their own dimension,  and these dimensions have no points of contact.

Judging by the statements of the officials and the importance they attach to the issue, there will be indexations, but as for the growth of incomes, including the citizens’ incomes on pensions after the upward revision of retirement age... The President promised it, didn't he? Well, maybe, some day the authorities will have time to get around to pensioners.