On the Initiative Regarding Changing the Seniority pension to Federal State Employees

The expert community analyzes the initiative displayed by a body of Russian government to introduce amendments in the Federal Law of 15 December 2001 № 166-FZ “On State Pension Provision in the Russian Federation” regarding the increase of current ratio for limiting average monthly earnings of civil employee to 3.5 official salaries, which is the basis for calculation of the seniority pension.

At present, in compliance with part 2 Article 21 of this Law, the average monthly earnings amount to 2.8 official salaries. Originally in 2001 the ratio was set at 1.8 official salaries. Then, after the adoption of the Federal Law of 8 May 2004 № 34-FZ “On the Introduction of Amendments in Articles 14, 21 and 25 of the Federal Law “On State Pension Provision in the Russian Federation” pensions were recalculated with the use of ratio 2.3 starting with 1 July 2002. Third increase was approved on 18 July 2009 after the adoption of the Federal Law № 187-FZ “On the Introduction of Amendments in the Federal Law “On the State Pension Provision in the Russian Federation and in Article 39 of the Federal law “On State Civil Service in the Russian Federation”. The ratio was raised to 2.8 official salaries (with recalculation fr om 1 January 2009). Thus, during 2001-2009 this ratio went up and at the same time pensions followed suit and went up on the first occasion by 21.7% and the second occasion by 38.9%.

Moreover, official salaries of the federal state civil employees, which serve as the basis for calculation of seniority pensions and subject to approval by the President of the Russian Federation, in particular by Decree of 25 July 2006 № 763 “On Monetary Pay of the Federal State Civil Employees” were indexed from 1 January 2007 through 1 October 2008 four times (from 1 January 2007 by 1.1 fold, from 1 December 2007 – by 1.15 fold, from 1 February 2008 – by 1.09 fold, and from 1 October 2008 – by 1.09 fold).

In the proposal the payment ratio is to grow by 0.7 official salary (by 25%). This is explained by the fact that from 1 October 2008 through 1 January 2014 official salaries will not be subject to indexation. At the same time, seniority pensions in compliance with the Federal law of 17 December 2001  № 763-FZ “On Seniority pensions in the Russian Federation” are subject to indexation several times a year (annual indexation is provided for in the budget of the RF Pension Fund by no less than 8% through 2013), which will result in the real fall of income of the federal government employees and decline in the prestige of the Federal Service.

In 2001-2009 with the increase of payment ratio used for determination of salary of state federal employee, various periodic publications compared pensions of “ordinary” pensioners in compliance with №173-FZ with seniority pensions of federal employees. The conclusion was the following: “maximum possible seniority pension amounts to 75% of average monthly earnings of federal state employee. This is twice a much than any current “ordinary” pensioner receives. Regarding others the objective is to raise the pension up to 40% of average monthly salary”1.

However in reality pension provision of federal state employees is far from 75% of average monthly salary. For instance, according to the data of the Federal State Statistics Service, average earnings of state employees constituted in 2010 50.3 thousand Rubles. At the same time, the RF Pension Fund provides information according to which average seniority pension of this category constitutes 10,949 Rubles (21.7% of average monthly salary). According to data of the RF Pension Fund as of 1 February 2011 average old-age retirement pension amounts to 8,498 Rubles. Thus, with annual old-age retirement pension indexation and retaining previous ratio of seniority pension in the average income of state employee (in case of absence of official salaries until 2014), the size of the retirement pension will exceed the size of seniority pension.

This is determined by specifics of Russian legislation regarding this category of pensioners: average monthly salary used in the old-age retirement pension calculation is not equal actual salary, which is calculated taking into consideration various additional incentives (salaries for grade rank, additional payments and monthly bonuses)2.

Main complication of pension provision for federal state civil employees is reflected in part 2 Article 7, part 1 Article 14 and part 2 Article 21 of the Federal law of 15 December 2001 № 166-FZ “On State Pension Provision in the Russian Federation”. On the one hand, this category of persons is eligible to get two pensions: retirement pension (disability pension) and seniority pension. On the other hand, overall amount of seniority pension and savings part of the retirement pension may not exceed 75% of the average monthly salary. At the same time, the average monthly salary is not calculated on the overall amount of declared earnings, nut on the size of the official salary, which is calculated by using payment ration (now 2.8).

For example, the official salary of the Head of Staff of the RF Federation Council, according to the Decree of the President of the Russian Federation of 25 July 2006 № 763 “On Monetary Pay of Federal State Civil Employees” presently amounts to 6,300 Rubles. Correspondingly, average monthly earnings used in the seniority pension calculation comes to 17,640 Rubles (6,300x2.8). Depending on the service record, maximum pension provision of such person will be between 7,938 and 13,230 Rubles. Official salary of employees “Principal consultant” amounts to 3,900 Rubles; with calculated average monthly income of 10,920 Rubles, pension provision of this category of persons with a maximum service record of 25 years comes to 8,190 Rubles. Thus, the bigger the retirement pension (disability pension), the smaller will be seniority pensions in the overall pension income.

From 1 January 2010 the effective norm is: wh ere the overall amount of material provision of nonworking pensioner does not reach the subsistence minimum determined in a subject of the Russian Federation, this pensioner is eligible for a social benefit, which may be paid both from the federal or regional budgets. It is obvious, that state employees are not eligible for benefits from the federal budget because taking into account two pensions “local” social standard may not be below the federal one.

The Moscow Government Regulation of 21 December 2010 № 1073-pp “On Raising Urban Social Standard from 1 January 2011” the size of the urban social standard was set at the level of 11,000 Rubles for nonworking pensioners residing in Moscow of a monthly compensatory payment to certain categories of working pensioners. These measures fully comply with the pension policy. Social standard setting in a subject of the Russian Federation depends not only on the price level and is not subject to indexation as retirement pensions. The size of compensatory payment depends on the overall economic situation in the region. For example, only in 2009 the size of compensatory payment in Moscow went up by 51.1% (from 6,800 to 10,275 Rubles). As of 1 January 2010 with the number of pensioners coming to 2,511,000 persons, the number of pensioners who receive urban compensatory payments constituted 2,026,000 persons (80.7%). At the same time, in poor regions increase of pension provision of federal employees will lead to social inequality between pensioners. Moreover, we should bear in mind that the number of seniority pensioners constitutes only 46,000 persons (9% of the overall number of federal employees), who reside in various regions.

Main conclusions:
1) There are no problems with low pension provision of federal state civil employees, including the city of Moscow (they receive additional payment to equal the level of the urban social standard together with the majority of pensioners);
2) Alignment of the pension rights of federal civil employees and ordinary pensioners represents a promising direction of development of pension schemes.

А.А. Аlaev – Research fellow of the Budget Federalism Department

1 Very Important Pensioner // Rosiiskaya Gazeta. Federal issue №5293 (214). 23.09.2010.
Меdvedev Counted VIP-Pensioners // Gazeta.ru. 23.09.2010.
Dmitriy Medvedev Approved the List of Pensioners-Government Employees // Komsomolskaya Pravda. 23.09.2010.
2 Please in more detail on pay issue of the federal government civil employees see the Decree of the RF President of 25 July 2006 №763 “On Pay Issue of the Federal Government Civil Employees”.