Former Finance Minister Alexei Kudrin and Yevsey Gurvich, authored a lengthy Vedemosti commentary on pension reform entitled "Break People of the Habit of Paternalistic Thinking," published April 11, 2012.
Kudrin and Gurvich argued that Russia is a failing to address what could be an unfolding crisis in the pension system, one that will have a broad budgetary and economic impact. They called for an increase in the retirement age, linking retirement age to growing life expectancy. The crux is if longer lifespans are accompanied by longer years of sufficiently good health, making possible a longer active working life.
Politically pensioners make up 40% of voters participating in elections, a percentage expected to rise.
Kudrin and Gurvich warn: "... sooner or later the government will have to make serious decisions regarding the pension system."
"The task is very large in scale -- the collapse of the entire budget system must be prevented."
But they say the problem is not addressed adequately:
Unfortunately, in Russia to this day, not only has a clear understanding of how we are to counter aging not been worked out, but a system-wide solution for this problem has not even been included in the list of priorities of economic policy. Preparation of an action plan would also be useful as a proving ground for polishing the general principles for conducting the reforms.S&P estimates for a range of countries show that the aging of populations will require an increase by 7.5% of GDP over 40 years in state expenditures for pensions and health care. But in Russia "the scale of the problem is even greater."
According to Kudrin and Gurvich:
- Russian pension expenditures are already "quite high," markedly higher than the OECD average
- Russian pension premiums cover less than half of the payouts, and financing from the budget is 2.5 times the European average
- preserving the system unchanged for another 50 or 60 years will result in a decline in the level of pensions as compared with wages
- the pension "correlation" (coefficient of replacement) is already not that high, and will drop by another half in the next 40 years, resulting in an even lower standard of living for pensioners
- on the one hand, simply throwing more money at the matter is problematic, because pension premiums would have to be increased by a point every year, impacting economic development; at the same time abandoning reform would "endanger the entire economy"
A Way Out?
Kudrin and Gurvich observe that some economists focus on the development of a savings-type pension system. The idea is that "full prepayment" by savings would stave off a buildup of the "pension deficit."
But they suggest that a savings-type system does not protect against a decline in retiree living standards, because it could still involve a decline in what they call the "replacement coefficient."
Raising the Pension Age
The authors cite an economic study showing that "the only way to really solve the long-term problem of aging (and not simply to conceal it for the next five or 10 years) is to raise the pension age as length of life rises."
Kudrin and Gurvich argue that maintaining a constant correlation between labor activity and retirement:
- avoids raising pension premiums
- avoids a build-up in the pension system deficit
- avoids a reduction in the replacement coefficient (avoids reducing a decline in retiree standard of living)
Some countries already link retirement age to the general life span, such as Denmark.
Life Span vs. Working Life
Kudrin and Gurvich want to align retirement age with a longer working life: "In the first stage, we need to reach those ratios between length of work and receipt of a pension that would make a more acceptable level of pensions possible."
The authors cite a WHO study as indicating that a longer lifespan includes an increase in the healthy portion of that lifespan as well, by a similar ratio. In other words, they argue that people living longer also have a longer active phase of life during which they can work longer.
"Based on state of health, the degree of ability to work, and anticipated life expectancy, a Russian citizen who will be 65 years old in 2030 will roughly correspond to a Russian citizen who is now age 60. In other words, the lines determining the onset of early old age and the state of being unable to work should be periodically adjusted similar to how the amount of the minimum subsistence standard or the size of the pension is revised taking inflation into account."
Stage 1
Kudrin and Gurvich want to bring the pension age for women to 59 or 60, and predict that it eventually could reach 62 by 2030.
"According to Rosstat data, the proportion of working women aged 55-59 years is consistently rising (it came to 36% in 2000, and 49% in 2010)."
And Rosstat is predicting that, by 2030 the life span of Russian men will rise by five years, the life span Russian women by 3.5 years.
Yet today "Russian women receive a pension for an average of 24.5 years -- substantially more than women who are residents of Germany, Canada, or the United States (20-21 years) and more overall than women who are citizens of the OECD countries (23.3 years)."
The authors indicate:
- more than 90% of women live to 55 years of age
- if the pension age is raised to 62 by 2030, projections indicate the same percentage could live to pension age by that time, around 90%
Objections to Raising Retirement Age
Kudrin and Gurvich note objections to raising the pension age, including concerns about short life spans and small portions of the population living to retirement age, as well as difficulties in finding work when older.
They respond with the data about Russian women currently receiving pensions for longer periods than their counterparts in other countries.
Former Finance Minister Alexei Kudrin and Yevsey Gurvich, authored a Vedemosti commentary on pension reform entitled "Break People of the Habit of Paternalistic Thinking," published April 11, 2012.
Kudrin and Gurvich argued that Russia is a failing to address what could be an unfolding crisis in the pension system with broad budgetary and economic impact. They called for an increase in the retirement age, linking retirement age to growing life expectancy. The crux is longer lifespan being accompanied by longer stretches of sufficient health making possible an active working life.
Politically pensioners make up 40% of voters participating in elections, a percentage expected to rise.
Kudrin and Gurvich warn: "... sooner or later the government will have to make serious decisions regarding the pension system."
"The task is very large in scale -- the collapse of the entire budget system must be prevented."
But they say the problem is not addressed adequately:
"Unfortunately, in Russia to this day, not only has a clear understanding of how we are to counter aging not been worked out, but a system-wide solution for this problem has not even been included in the list of priorities of economic policy. Preparation of an action plan would also be useful as a proving ground for polishing the general principles for conducting the reforms."
S&P estimates for a range of countries show that population aging will require an increase by 7.5% of GDP over 40 years in state expenditures for pensions and health care. But in Russia "the scale of the problem is even greater."
According to Kudrin and Gurvich:
- pension expenditures are already "quite high," markedly higher than the OECD average
- pension premiums cover less than half of the payouts, and financing from the budget is 2.5 times the European average
- preserving the system unchanged for another 50 or 60 years will result in a decline in the level of pensions as compared with wages
- the pension "correlation" (coefficient of replacement) is already not that high, and will drop by another half in the next 40 years, resulting in an even lower standard of living for pensioners
- on the one hand, simply throwing more money at the matter is problematic, because pension premiums would have to be increased by a point every year, impacting economic development; at the same time abandoning reform would "endanger the entire economy"
A Way Out?
Kudrin and Gurvich observe that some economists focus on the development of a savings-type pension system. The idea is that "full prepayment" by savings would stave off a buildup of the "pension deficit."
But they suggest that a savings-type system does not protect against a decline in retiree living standards, because it could still involve a decline in what they call the "replacement coefficient."
Raising the Pension Age
The authors cite an economic study showing that "the only way to really solve the long-term problem of aging (and not simply to conceal it for the next five or 10 years) is to raise the pension age as length of life rises."
Kudrin and Gurvich argue that maintaining a constant correlation between labor activity and retirement:
- avoids raising pension premiums
- avoids a build-up in the pension system deficit
- avoids a reduction in the replacement coefficient (avoids reducing a decline in retiree standard of living)
Some countries already link retirement age to the general life span, such as Denmark.
Life Span vs. Working Life
Kudrin and Gurvich want to align retirement age with a longer working life: "In the first stage, we need to reach those ratios between length of work and receipt of a pension that would make a more acceptable level of pensions possible."
The authors cite a WHO study as indicating that a longer lifespan includes an increase in the healthy portion of that lifespan as well, by a similar ratio. In other words, they argue that people living longer also have a longer active phase of life during which they can work longer.
"Based on state of health, the degree of ability to work, and anticipated life expectancy, a Russian citizen who will be 65 years old in 2030 will roughly correspond to a Russian citizen who is now age 60. In other words, the lines determining the onset of early old age and the state of being unable to work should be periodically adjusted similar to how the amount of the minimum subsistence standard or the size of the pension is revised taking inflation into account."
Stage 1
Kudrin and Gurvich want to bring the pension age for women to 59 or 60, and predict that it eventually could reach 62 by 2030.
"According to Rosstat data, the proportion of working women aged 55-59 years is consistently rising (it came to 36% in 2000, and 49% in 2010)."
And Rosstat is predicting that, by 2030 the life span of Russian men will rise by five years, the life span Russian women by 3.5 years.
Yet today "Russian women receive a pension for an average of 24.5 years -- substantially more than women who are residents of Germany, Canada, or the United States (20-21 years) and more overall than women who are citizens of the OECD countries (23.3 years)."
The authors indicate:
- more than 90% of women live to 55 years of age
- if the pension age is raised to 62 by 2030, projections indicate the same percentage could live to pension age by that time, around 90%
Objections to Raising Retirement Age
Kudrin and Gurvich note objections to raising the pension age, including concerns about short life spans and small portions of the population living to retirement age, as well as difficulties in finding work when older.
They respond with the data about Russian women currently receiving pensions for longer periods than their counterparts in other countries.
Paternalistic Model vs. Balancing of Interests
Kudrin and Gurvich then express concern over how pensions are conceptualized, referring to a Soviet era paternalistic model under which citizens regard the state as the source of the pension, rather than the source being the citizens themselves paying into the system.
They note that, under a paternalistic model, a sense of the state's obligation is emphasized, but that they wish to focus more on a balancing of citizens' interests as taxpayers with their later interests as pensioners.
Citizens should firmly grasp the fact that they are the ones who finance pensions, education, and the health care system. Otherwise we will inevitably strangle production with higher taxes and social fees and deprive it of prospects for development -- and then we will certainly be unable to count either on the dynamic growth in the economy that we are seeking or on receiving adequate pensions.They caution that if the state does not curb obligations, at some point it might switch from one extreme to another: "Under the burden of excessive obligations, the state at some point will be forced to throw them off, retaining only the very minimum for itself -- one extreme will then turn into the other."
Kudrin and Gurvich also speak of the need for programs to balance other burdens created by a longer working life. For example, they speak of an obligation of older women to babysit children, and suggest the creation of more preschool programs [apparently so that the older women can work for a wage and have wage-earners at the preschool program be paid to provide the care previously provided by the older women.]
[The overriding goal of the authors is to push for an overriding strategy to address the issues raised by pensions and the aging population.]
[no link is available to an English-language translation of the commentary]
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