A Reduction to 2% is the Worst Possible Option

Russia's government intends to finalize, by the end of this year, its decision on cutting the mandatory funded part of labor pension.

Everybody wants to believe that, as a result of this decision, the funded part of labor pension will begin to function more efficiently. At present, several options are being discussed in regard of its future. I believe that the best option would be to make it possible for people to decide on an individual basis as to whether to stick to the funded pension system, or to discard it altogether and to switch over to a distributive pension system.

The worst possible option would be to reduce the cumulative component of mandatory insurance contributions from 6% to 2%, as is proposed by the RF Ministry of Labor and Social Security. In my opinion, the current 6% rule should be either preserved unaltered, or completely cancelled, because if the cumulative component is radically reduced, the ratio between administrative costs and the volume of contributions will be very considerable.


Another of the issues under discussion is the idea of introducing corporate pensions. The thing is that 30% of Russian citizens actually become pensioners before they reach the official retirement age. Some of these individuals have worked in extremely adverse working conditions. Currently, all the taxpayers have to shoulder the resulting additional tax burden because some employers tolerate unhealthy job conditions at their work sites and, moreover, underpay their workers. It is even profitable for such employers if the job conditions offered by them are deemed to be unhealthy. Their logic is simple: an employee will continue to work even after having been granted a pension at the age of 45, which will enable him or her can eke out an existence without their wage being increased. At present, society as a whole is footing the aggregate bill for unhealthy workplace practices. It is clear that this burden must be shifted on to the employers. That is why the idea of introducing corporate pensions in Russia is currently being discussed.


V. S. Nazarov - Candidate of Economic Sciences, Head of the Budget Federalism Department