The Finance Ministry plan: what retirement expect Russians

To equalize the retirement age for men and women at 65 years

In 2019 will mark 100 years since the adoption of the Vladimir Lenin of the Declaration on social security, which was first announced by the retirement age at 55 for women and 60 years for men. However, it was clearly stated needed to obtain pension seniority (at least 25 years for men and at least 20 years for women). In Russia until recently, the minimum length of service was only 5 years old. Only starting in 2015 required experience began to increase for one year, to 2025, the minimum total work experience to apply for the pension reached the age of 15.

In Russia, the time came when the retirement age needs to be adjusted in accordance with current economic and demographic realities. Russia belongs to the group of countries with a rapidly ageing population — the proportion of citizens older than 65 years is 13%, although, of course, it’s not the highest in the world (in Japan, for example, the proportion is more than 30%). Worse with the ratio of the working population, for which premiums are paid and the number of pensioners. Russia is now one retiree for 1.3 employee (the rate of those citizens for whom the FIU paid the premiums, and that about 55 million people). In the circumstances raising the retirement age could help to reduce the burden on the state pension system, but it is necessary to consider the possible risks of such a step.

First, in most countries the increase in the retirement age occurred gradually. Thus, the most optimal from the point of view of reducing social tension is increasing the age of retirement with a step of 3 to 6 months for the year. Increase in increments of 1 year, as proposed by the Finance Ministry, is quite “painful” initiative. Especially for people who left before retirement quite a bit.

Secondly, there is the likelihood of increased level of unemployment among young people, due to the fact that staff rotation will slow down. Considering the observed slowdown in economic activity and unfavorable forecasts on the dynamics of domestic GDP, is a serious risk.

According to FOM (the survey was conducted in September of 2015), people are potentially ready to raise the retirement age — 78% of respondents reported the desire to continue working after retirement age. But workaholics lies in wait for the next initiative of the Ministry of Finance.

To refuse from the payment of pensions or at least a fixed portion of working pensioners

The number of working pensioners in Russia in 2016 -14,2 million people, i.e. approximately 30%. And this is only the official data. If officially to deprive working pensioners of the right to receive labour pension for old age, they will start to look for informal work. People will continue to work but will decrease the amount of insurance contributions to the pension Fund, which paid for them by employers. What are the consequences of such a step? From the point of view of the Ministry of Finance, the savings on pension payments in the amount of about 190 billion rubles (given that the average pension in Russia is currently 13 132 rubles); from the point of view of pensioners — the decline in living standards, increasing social instability and discontent.

The Ministry of Finance often refers to article 26 (102 ILO Convention), which States that “legislation may provide for the suspension of the issuance of allowances to the persons entitled to it, but engaged in any established income-generating activities ….”, proving the possibility of reduction of pensions to working pensioners. Nevertheless, Russia has still not ratified this Convention. By the way, in the same Convention mentioned that the size of the replacement rate labor income pension should not be less than 40% and a target of 60%.

In Russia the decline in household income and growth in the consumer price index such a step as depriving an employee retirement pension, can lead to disastrous consequences.

To deal with the beneficiaries

The Finance Ministry proposes not to pay early pensions to those who have a right to them in connection with the work on harmful and dangerous productions and continues to work there. Dorozhnikam-public sector (educational, medical, creative workers), the Ministry of Finance proposes to increase the period required for the establishment of early retirement, adding gradually one year to the existing until then, until it is in line with the generally established retirement age.

The proposal does not include the numerous beneficiaries among law enforcement agencies, since the pensions paid by the Ministry of defence, and not the FIU. To cut spending on the defense industry, the government is not going to.

The transformation of the system of early retirement was planned in the Strategy of development of pension system of the Russian Federation up to 2030, in which was mentioned about 30% of those employees who are assigned to an early retirement pension in connection with special and special working conditions, but pay them the pensions are financed from the General funds of the FIU, and not the insurance contributions of employers.

The Concept was proposed to use a differentiated approach to different categories of workers depending on their acquired rights to early retirement pension. For example, those who have “complete” a special guardian for the purpose of labor early retirement in hazardous industries was assumed to retain the right to early retirement. The same who has special experience “incomplete” — still have the right to early retirement pension in payment for them in insurance premiums increased by the additional tariff of the amount. If the employee do not have any specialized experience, such employees shall have the right to receive corporate (voluntary) pensions and other guarantees and compensation from the employer.

It’s logical that employers should not only take care of the adherence to accepted safety standards, but also about how to financially compensate for the loss of health of its employees.

To establish a uniform tariff of social insurance

The idea of introducing a “ceiling” under the income from which shall be paid the contributions to the pension Fund was created in 2010 and was based on the fact that only a certain part of the earnings must be insured, it has pension obligations arising in limitations on the maximum size of pension in the future. Two years after this, due to the reduction of the insurance rate, there was a 10% fee on the excess of the “ceiling” (the size in 2016 is 796 thousand rubles per year). Of course, for the full implementation of the insurance liabilities before paying people the rate of contribution should be uniform. Such a step will not only increase the income of the RPF, but also the size of labour pension in the compulsory pension system for the “middle class” of Russian citizens.

The Finance Ministry proposes to levy a 22% deduction in the insurance system from the whole salary of the employee and not from the first 66 thousand. RUB. its structure, as is happening now. Contributions to the pension Fund paid by the employer, so the costs will increase, and for the employee — no. In this situation, the employer is tempted official “understatement” PAYROLL for highly-paid employees, but here must come the Federal tax service (FTS), which is also planning to bring charges of insurance premiums.

Set private property on retirement savings

According to the survey conducted by the FOM in the fall of 2015, the question “do you Personally whether or not to set aside funds to have a pension?” answered positively 20% of respondents (“I will start in the near future”) and 13% said they have set aside. Thus, to carry out independent savings for retirement were ready less than 33%. By world standards, this is a very small figure. People in Russia are not ready to consistently save for retirement.

Certainly, the positive aspect in the proposals of the Ministry of Finance is obtaining private ownership of retirement savings, but how this right will be implemented — a question of law. It is obvious that the mandatory accumulation from NPF to take to be impossible, but it is not excluded that it will be possible to inherit. Perhaps legislation will be allowed to continue to use them as collateral for a loan, at least partially (e.g., 60%). Most likely, you can pick up a limited size (say, no more than 20%) in case of emergencies, such as the costs of treatment, but only under the condition that the contributions were made long (e.g., at least 10 years).

Incentive for voluntary participation in the new funded system for people with income more than 60 thousand rubles. per month (there are only 12% of the total number of employees as of April 2015) could be a progressive scale of tax breaks on contributions. In other words, the higher the selected percentage, the higher the amount deductible for personal income tax.

What is the result?

The purpose announced by the Ministry of Finance innovations were, first, the desire to reduce budget obligations to the pension Fund on payment of funded pensions, second, to try to resolve long-standing issues with the pensions of beneficiaries and dosrochnikov (because their payout is also linked to the spending of budget resources) and, finally, the realization of the individual directions of development of Russian pension system laid down in the Strategy of development of pension system of the Russian Federation until 2030 Challenge last, among other things, is the formation of a three-tier pension system for groups with different incomes.

Trichuroidea model assumes the following structure: the first level of the retirement pension (national pension) in the framework of the state (public) system of mandatory pension insurance; the second is corporate pension, a right which is acquired at the expense of additional insurance contributions (may be both voluntary and mandatory); the third level is the private (voluntary) pension generated by contributions produced by a natural person on a voluntary basis in specialised savings financial institution (pension funds, insurance company, Bank).

It is projected that a three-tier pension system needs to provide the employee with the insurance (labour) experience not less than 40-45 years of age the replacement rate of about 70% of their average earnings. So the Finance Ministry’s proposals should be mainly interested in medium – and high-yield categories of citizens. The poor to save money for retirement will still fail.

The authors ‘ point of view, articles which are published in the section “Opinions” may not coincide with ideas of editorial.