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Russian government sets eyes on pension money as source of anti-crisis funding

September 30, 2015, 22:19 UTC+3 Alexandrova Lyudmila
© Valery Matytsin/TASS/archive

MOSCOW, September 30. /TASS/. As current economic problems tend to get worse the Russian government has been looking for opportunities to ease budget deficit. Pension spending — one of the largest budget items — is seen as one of the likely targets of austerity measures, such as a freeze on the accumulated pension savings, pension indexing cuts, a stop to pension payments to working employees who are past the retirement age and a retirement age rise. True, cutting costs is a must, but one has the impression that retirees are precisely the group of the population that will be forced to pay for all of the crisis-related problems, experts say.

Several mass media said on Wednesday the government had already made a decision to freeze — for a third year in a row — the accumulated pension contributions of 28 million Russians. This is not so, the question of indexing pensions and freezing their accumulation component has not been settled yet, presidential spokesman Dmitry Peskov declared. "No final decisions have been made so far, but the government’s point of view is known to us," he said.

Cutting funds that can be spent on indexing pensions to adjust them to inflation growth is an old-time controversy between the economic and social segments of the government. The Ministry of Finance believes that pensions can be raised by no more than 4%, while the social segment of the Cabinet of Ministers argues it should be equal to the actual inflation — about 12%.

Discussions are underway whether pensions should stop to be paid to employees already past the retirement age, if their overall annual income exceeds one million roubles. No decision has been made on that score yet, either.

In the meantime, discussion is in progress inside the government whether the retirement age should be raised. Economics-related ministers have been systematically calling for its increase. In contrast to this social affairs-related ministers have been vowing in public they will not do that.

"Oil prices have slumped 50% or even more against last year’s expectations," the leading research fellow at the Development Centre institute of the Higher School of Economics, Andrey Chernyavsky, has told TASS. "It is clear that the reserve funds will soon run dry and something will have to be reduced after all. Pension Fund transfers are one of the largest spending articles, so it is quite logical it is being scrutinized for opportunities to cut costs."

The pension system is off balance, Chernyavsky said. Insurance deductions fail to cover the government’s spending liabilities. In 2015 federal budget transfers to the pension system will total about 2 trillion roubles, or about 30% of the overall spending on pensions. There will inevitably follow such unpopular measures as retirement age rise, pension indexing cuts and a freeze on the accumulated savings. "All of these solutions are rather painful, but there are no good solutions at hand at all," he said.

"The accumulation component was one of the few instruments that had been expected to help bring about and develop the middle class," the director of the Incomes and Living Standards Analysis Centre at the Higher School of Economics, Liliya Ovcharova, told TASS. "On the one hand, it is a guarantee of higher-level consumption after retirement. On the other, it is a source of long-term borrowing for the economy."

"All this creates an impression retirees are the group of people that will be forced to pay for resolving the crisis-related problems," Ovcharova said. "We can see no other population groups or other instruments of raising the effectiveness of public spending."

As far as the retirement age is concerned, Ovcharova believes it should be raised, but not the way that has been proposed so far. "That must be done at the phase of economic growth, as long as there are opportunities for compensating for people’s losses. The people should be warned at least five years in advance."

A pension incomes freeze would be the easiest solution from the standpoint of tactical interests, but strategically it would be a mistake, the leading research fellow at the Incomes Analysis Centre, Oksana Sinyavskaya, has told TASS. "One of the reasons why the government has proposed this is most working people never stop to think what they will live on when they reach the age of retirement. So the risk of social upheavals is minimal."

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