Russia

Pensions

Pensions are the largest expenditure of the social safety program. The Pension Fund accounts for 83 percent of Russia's extrabudgetary allocations. At the end of 1994, about 36 million citizens, or 24 percent of the country's population, were receiving pensions, an increase of about 5 percent in the first three post-Soviet years. Two broad categories of pensions are paid in Russia: labor pensions, which are disbursed on the basis of a worker's payroll contributions, and social pensions, which are paid to individuals who have worked for less than the five years needed to qualify for a labor pension. All Russian citizens who have worked for twenty years are entitled to at least a minimum pension. In 1994 about 75 percent of all pensioners received labor pensions. The Pension Fund also finances some child allowances and other entitlements.

The Pension Fund is administered by the Ministry of Social Protection and financed by a 29 percent payroll tax and by transfers from the state budget. Between 1991 and 1993, the real income of pensioners was cut in half as prices rose rapidly and pension indexation failed to keep pace. Inflation also severely eroded the value of the life savings of retirees, and a disproportionate number of pensioners were victimized by financial scams. A 1994 law requires quarterly indexation of pensions, but the law was not observed consistently in its first year, and in mid-1995 the average pension fell below the subsistence minimum for pensioners. Beginning in 1994, the government's failure to pay pensions on time led to large rallies in several cities. In August 1994, an estimated 10 million pensioners did not receive their checks on time, and pension arrears mounted in the two years that followed. By mid-1996 the payment backlog was estimated at US$3 billion. The present system includes an important provision that has kept many pensioners above the poverty line: it allows workers to draw pensions while continuing to work. In 1995 as many as 27 percent of Russian pensioners continued to work after retiring from their primary job.

Russian and Western experts agree that the pension system requires comprehensive reform--although its rate of payment compliance by enterprises is substantially better than that of the State Taxation Service. The most pressing needs are an effective system of indexation of pensions to purchasing power, an insurance mechanism, individualized contributions, higher retirement ages, and the closing of loopholes that allow early retirement. In 1995 the Ministry of Social Protection began work on a reform that would establish a three-tier pension system including a basic pension, a work-related pension in proportion to years of service, and an optional private pension program. In 1995 Prime Minister Viktor Chernomyrdin admitted that the state budget lacked the money to continue indexing pensions according to living costs. In November 1995, a decree by President Yeltsin, On Additional Measures to Strengthen Payments Discipline for Settling Accounts with the Pension Fund, set stricter reporting standards for payments to the fund by organizations and citizens, in an effort to preclude nonpayment. In the midst of his campaign to be reelected president, Yeltsin then approved two laws increasing minimum pension levels in three stages, by 5, 10, and 15 percent, between November 1995 and January 1996.

Women are entitled to retire when they reach age fifty-five, and men when they reach age sixty. Nevertheless, financial hardship leads many women to remain in the labor force past retirement age, even while continuing to receive pensions, in order to prevent a drop in their families' standard of living. In 1991 women constituted an estimated 72 percent of pensioners. The disproportion between the genders stems from women's earlier permissible retirement age and their greater longevity. Aside from pensions, women receive other retirement privileges. Mothers of five or more children are entitled to a pension at age fifty. "Mother Heroines"--women with ten or more children--receive an allowance equal in sum to the pension, and the time they spent on child care leave counts toward the minimum twenty years of work required for labor pensions. For these reasons, many women retire before age fifty-five, while most men wait until they reach sixty-two. (Many job categories routinely allow retirement for both sexes before the standard ages.)