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Putin calls for new pension formula, long-term and balanced pension system

June 14, 2013, 3:02 UTC+3

President called for making decisions that will create a long-term, balanced and transparent pension system in Russia

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MOSCOW, June 14 (Itar-Tass) - President Vladimir Putin called for making decisions that will create a long-term, balanced and transparent pension system in Russia.

“Making crucial decisions about a pension formula is a high-priority task,” he said when presenting the Budget Message on Thursday, June 13.

He stressed that a pension formula “should allow for a differentiated approach to each citizen: the more years of service and the higher the salary, the higher the pension. And of course the formula must be fair, stable, transparent and, crucially, clearly understood by both employees and employers.”

Putin said a pension formula should also encourage people to retire later and reduce the pension system’s dependence on budget transfers, while preserving the insurance premiums for business at their current levels.

“We need to keep the basic rate of insurance premiums for businesses at current levels. We cannot solve the pension system’s problems by increasing the tax burden incumbent on business, and by suppressing entrepreneurial activity and economic growth,” the president said.

He believes that a new pension formula should be discussed “with the broadest possible participation of professional unions, employers, public organisations and experts.”

“The pension system should be stable and clear for both employers and citizens,” he said.

He recalled that at the end of last year the government made the decision allowing people to decide in 2013 how to manage their pension savings.

“We have given our citizens the right to decide over the course of this year on where to direct their four-percent insurance premiums: either to their insurance, or to the funded part of their pension. Naturally, it would be unfair to deprive those who will use the pension system in the future of this right. I think that they should benefit from this too,” Putin said.

However, he stressed that “this will be possible only after adopting laws which fully, and I want to emphasise this, fully ensure the establishment of a functioning system to guarantee pension savings.”

“We have enough problems with fraud victims to understand that with regards to pension savings, citizens’ pension rights, we must act extremely carefully. These funds should be guaranteed, as should their safety,” the president said.

Putin earlier demanded that situations where pension savings go through financial pyramids should be excluded.

“Attention should be paid to the use of financial resources that go to state-controlled and private pension funds,” he said.

“The regulatory framework has yet to be fine-tuned and proper control needs to be exercised,” the president said.

“There are enough instruments for that, but if we keep this defined-contribution pension] system, the state must be absolutely confident that the rights of citizens will be guarantees and that no pyramids from the past will be recreated,” Putin said.

He noted that one of the objectives of the National Welfare Fund is to maintain the stability of the pension system in the country.

“Depending on the final parameters of the pension formula, we should also indicate to what degree National Welfare Fund resources can be used to cover deficits in the pension system,” Putin said.

The president called for greater transparency of the pension system. “We should also pay attention to problems relating to the transparency of the pension system and extra-budgetary funds. Let me remind you that as of January 1, 2014 all extra-budgetary funds will be transferred to the cash services of Federal Treasury agencies. I would ask you to prepare accordingly, and I would like to draw your attention to the fact that this date will not be postponed,” he said.

He also asked the government to decide on the feasibility of transferring the administrative aspects of compulsory insurance contributions to the Federal Tax Service. “I know that the government’s social bloc believes that this work should be conducted where it currently is, but representatives of businesses and of the economic bloc believe that the Federal Tax Service can do it more efficiently. I do not want to and will not impose my opinion on anyone, but I would ask you to definitively decide on this and bring these discussions to an end. Let me emphasise that the Government must make decisions this year, 2013, on all matters relating to further developing the pension system,” Putin said.

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