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Working Pensioners Will Continue to Receive Fixed Pension

24.09.2014 12:13 / vedomosti.ru

Prime Minister Dmitry Medvedev has turned down Minfin’s proposal to abolish fixed pension payments to working pensioners, a Government source told Vedomosti. A high-ranking Minfin official and Medvedev’s press officer Natalya Timakova confirmed that the proposal had failed to pass. The decision was carried out at Monday’s working session with the Prime Minister.

The Minfin proposal was shot down following consultations with the Constitutional Court, where the measure was considered likely to be deemed anti-constitutional, three federal officials told Vedomosti. Retaining fixed payouts to those who have been entitled to pensions prior to 2015, and abolishing payouts to those who sign on for their pensions after 2015, could be considered discrimination: dividing pensioners by sign-on date could be construed a violation of the constitutional principle of equal rights for all citizens, explains an official taking part in the pension policy debate. Besides, it twists the logic of the law: for no apparent reason only the fixed payouts are abolished — it would make more sense not to pay anything or pay the pension in full.

Minfin proposed abolishing fixed payouts to those who sign on for their pension from 2015 onwards and remain employed. Deputy Prime Minister for Social Affairs Olga Golodets lambasted the proposal, labeling it ‘unprofessional’ and ‘anti-constitutional’. The idea was aired two years ago when the pension reform strategy was drafted, she said. The logic was that the pension compensates for loss of earnings, and a pensioner who works can do without the pension, Russian Pension Fund Chairman Anton Drozdov told ITAR-TASS: “This decision was not passed at the time”.

Money saved by not paying the fixed pension part has already been reflected in the budget, approved by the Government last week, however abolishing fixed payout abolishment was postponed for further discussion.

If the decision fails to pass, in 2016-2017, funds may be allocated from pre-approved expenditure, and in 2015 — from anti-crisis budget reserves, a top Minfin official said yesterday. For 2015, the budget has reserves of RUB 190bn, including RUB 90bn left over from this year, Finance Minister Anton Siluanov said. In 2014, the anti-crisis reserve was some RUB 340bn, of which some RUB 240bn accounted for frozen funded pension savings. The moratorium was extended for 2015, raking in over 300 billion Rubles for the budget.

The average pension, according to August data by Russian Pension Fund, amounts to RUB 11 600, which is 35,5% of an average salary. The total amount of the fixed payout is RUB 3910.

Non-payment of the fixed part is an alternative to bumping up the pension age and a possible incentive for people to postpone signing on, says the Minfin; the welfare ministers go after the same result — through the new pension formula to be introduced in 2015, whereby a citizen’s refusal to receive pension translates into a higher pension coefficient for every additional year of work. Rosstat data shows that one in three Russians over the pension age (55 for women and 60 for men) continues to work.

According to the International Labour Organization (ILO), working pensioners may receive less or have their pension suspended, the decision is up to national governments. However, ILO poses one condition: payouts may be stopped if the pension is adequate (40% of earnings). Russia fails to reach this minimum, complains a federal official, involved in pension policymaking.

Abolishing or cutting pensions for working pensioners carries economic risks: this leads to illegal employment, says Drozdov. Pensioners are not too picky as it is, the older they are, the easier they agree to ‘shady schemes’: Rosstat data for 2013 states 15,1% women 55-59 and 22,1% women 60-72 (19,8% men from the same age groups) were illegally employed.

Pensioners often agree to menial jobs — as cloakroom attendants, babysitters etc., earning less as they age. 60-65 year-olds’ earnings are on par with pension, quotes the federal official: in 2013, the average paycheck for 60 year-old men was RUB 11 232, 55 year-old women — RUB 12 431, a male at 65 earned on average 7% less than at 60, and a 60 year-old female earned 12% less than at 55. Given a choice between pension and salary, pensioners will opt for pension and illegal salary, says the official.

Pensioners leaving for the shady sector may cause welfare funds lost income and a drop in personal income tax collected for regional budgets, says the federal official. Russian Pension Fund risks being flooded with lawsuits, this measure is an administrative nightmare, he says: RPF lacks the resources to receive timely updates on pensioners hire and retirement dates, this data will be delayed. Hence, pensions will be paid first, and then the overpaid amount will need to be withheld, and the only way to do that is by court order. Not only will the RPF be burdened by additional court fees, it will also get trapped in a ‘pension snatching’ controversy, another blow to the image of the state, predicts the official.

Olga Kuvshinova, Maxim Tovkailo

Non-state Pension Funds industry reformProject Group №1