RIGHTS-RUSSIA: Growing Old is Hard To Do

By IPS Correspondents Reprint | | Print |

Sergei Blagov

MOSCOW, Jun 27 2003 (IPS) - The elderly in Russia are seeing a small rise in pensions but the government is under pressure also to raise retirement age.

Pensions will rise 7.5 percent from August, Mikhail Zurabov, head of the State Pension Fund told media representatives in Moscow earlier this week. That means a monthly rise of four dollars (121 roubles).

When pensions were raised by two dollars a month earlier this year, some pensioners sent the extra money to President Vladimir Putin in protest.

Not many pensioners think the new raise is good enough, but not many are protesting either. Russia has had none of the kind of rallies over pensions seen recently in France and Austria.

The reforms to the pension system under way would include raising the retirement age, currently 60 for men and 55 for women. The World Bank has urged Russia to raise retirement age in order to get more people contributing to the economy, and fewer drawing on it.

Only some trade unions have protested. A group of unions in the Primorie region in the far east of Russia sent an appeal to Prime Minister Mikhail Kasyanov over the worsening living conditions for half a million pensioners in the region. The average monthly pension of 50 dollars a month in the region is half the minimum wage, the unions wrote to Kasyanov.

The government has promised a "decent pension system" but has not spelt out what that would contain, other than the four-dollar raise agreed for August..

Zurabov pointed out that several steps have been taken for pensioners already. The government’s monthly expenses on pensioners have risen three times from 762 million dollars in 1999 to 2.3 billion dollars now, he said.

The old monthly pension of 120 roubles gave people some safety and stability during the Soviet days. But that sense of safety collapsed along with the Soviet Union in 1991. Radical market reforms brought in hyperinflation. The value of old pensions and savings almost vanished.

Russia’s 40 million pensioners, in a population of 144 million, now live in virtual poverty. Improved packages have not kept up with inflation. The pension packet, like its Soviet predecessor, is funded by a 29 percent payroll tax that is replenished from the budget if it falls short.

The high population of pensioners and a high incidence of tax evasion have both led to a deficit in the pension system.

Between 1959 and 1990, the population above the age of 60 doubled to about 20 percent of the population. Since then, the numbers of the sixty plus have more than doubled again, so that Russia has just about two workers for every pensioner.

The World Bank loaned Russia 800 million dollars in 1997 to assist with pension reforms. The government took some steps to reduce the deficit in the pension accounts, and sought to simplify the benefits formula.

But serious questions have been raised about ways in which the government is managing pension accounts. The Vneshekonombank (VEB, the Foreign Economic Bank) has been nominated manager of state pension funds. Critics say this role leads to a clash of interests with the bank’s other role in managing the foreign debt. The bank would have an interest in raising the value of bonds from pension funds that it handles, and to reduce the value of the government debt bonds which it also handles.

The World Bank has been critical of the monopoly role of the VEB. Economic development minister German Gref has asked Kasyanov to remove the VEB from its position as manager of pension funds. The government has not agreed to the demand.

Critics say the pension fund’s spending on its management is set to rise three times to some 700 million dollars next year. Given what is going into the funds and what needs to go out, the World Bank has warned that pensions cannot be guaranteed.