NATALIA KORNIENKO: RETIREMENT SAVINGS IS AN INDIVIDUAL BUSINESS, IT IS A PERSONAL PENSION

Natalia Kornienko, Head of Tax System Development Department of the Gaidar Institute, was interviewed by the periodical “Svobodnaya Pressa”. The topic related to follow up of the pension reform which will have a close impact on self-employed.
Natalia Kornienko considered that it is up to self-employed person to pay into pension fund or accumulate savings on deposit accounts.
— An individual is responsible for his/her actions. A fixed payment for individual entrepreneurs regardless of income or no-income causes multiple complaints. Why you need to pay a contribution if there is no income?
On the other hand, if a person works exclusively as an entrepreneur (self-employed is an entrepreneur in fact) and does not care about his pension savings, then he should be prepared that when he will not be able to work or retire not wishing to work anymore, he will get nothing from the state. Therefore, it is critical to make retirement savings in any form.
Another issue is whether pension system adequately corresponds to those retirement savings that we make during our life. Pension reform demonstrated us how we can be deprived of everything at any moment.
If a person receives income from entrepreneurial activity, it does not mean that this income is subjected to pension fund contribution. Self- employed are not prohibited by labor legislation to work anywhere else. Without limitation, one can be self-employed with regard to “secondary” sources of income. For example, one can rent out an apartment and be permanently employed while his employer pays for him into pension fund.  In this case, self-employed may avoid paying contribution because he has already an account in the Pension fund with savings accumulated.
A person conducting entrepreneurial activity should pay tax in order to pay state expenses for highwayss, security, emergency ambulance and other services. However, retirement savings is a private matter, this is a personal pension.
«SP”: Nevertheless, social pension is guaranteed by all means, isn’t?  Is it realistic that nobody will guarantee us anything after pension reform?
— Pension is guaranteed if a person paid contribution or if he was incapable of work on legal basis.
“SP”: Are fears that employers will change status of employees to self-employed well-grounded? This procedure became especially widespread after the pension reform.
- Self-employed will experience the same as others who do not pay: they will receive a social pension. However, if any other pension reform takes place, they may not receive even a social pension. If the state does not have money, then it may turn out that a person who did not pay contribution will not receive anything. In some countries, this is the case - if you people do not make pension contributions, then, pension is not due to them.
However, employers can not change status of their employees for a more economic one as they will be asked questions: why Ivanov worked 2−5-10 years for an organization and probably he is still working there, but all of a sudden he switched to independent contractor agreement and started to pay 4% instead of income tax and full value contribution to Pension Fund? This is not possible, it is an illegal tax optimization. It is forbidden to manipulate legislation for such purposes.