Russia 111216 Basic Political Developments

Until Death Do Them Part

By Tai Adelaja Russia Profile 12/15/2011

As the gap in life expectancy between Russian men and women widens, cracks in the state pension system appear to have been widening too. But one way the Russian government could maneuver its way out of the demographic imbalance is to equalize retirement ages for men and women, experts from the Organization for Economic Cooperation and Development (OECD) said on Monday. With the country's average male life expectancy at just 60 years, Russian women may be called upon to wait an extra five years to qualify for retirement, the RBC Daily reported.

In order to maintain the solvency of Russia’s deficit-prone Pension Fund, OECD experts suggested this week that the government should increase the average retirement age, as well as public sector pension contributions, and put a limit on the early retirement window. While the average life expectancy for Russian men is 62 years – or 14.5 years lower than in OECD countries – Russian men presently claim retirement benefits at the age of 60. By contrast, the average life expectancy for women in Russia is 74.2 years (against 81.9 years for OECD countries), while their retirement age is set at 55. That means that women in Russia work for a shorter period of time and stay on pensions longer, according to OECD experts. "It is a paradox that of the two identical population groups, the one with higher life expectancy retires first," Angel Gurría, the OECD secretary general, told a meeting at the Ministry of Economic Development on Monday. A credible solution to the problem, she said, is "to eliminate gender differentiation in the retirement age and adjust it for life expectancy."

Russian economists are lining behind the proposal. "It's a rational proposal," said Vladimir Nazarov, the co-head of Russia's 2020 Strategy at the Gaidar Institute for Economic Policy. One should consider life expectancy at the time of retirement, since this is what shows the duration of the pension period, Nazarov said. Life expectancy after retirement for Russian women is 23 years, while it's only three years for men, he said. "It should probably take about ten years to equalize the pension ages for men and women to 60 years," Nazarov said. "One cannot raise the retirement age for those who are already set to go on pension because they are unlikely to be prepared for such drastic changes. It has to be gradual, a few steps at a time."

Russia's negative demographic trends have not only reduced the number of contributors to pension funds, they have forced the government to increase subsidies to the Pension Fund. According to the government-approved 2020 Strategy, Russia is to raise pension ages for both men and women to 63 years by 2030. The plan involves a gradual increase of one or two months every year. If the government follows through on such a plan and could successfully peg average retirement age at 62 years, the number of pensioners would reach 30 million by 2025, compared to 36 million if it had been left at the current levels, OECD experts said. 

"Women tend to experience a decline in activity during their reproductive years, but then they bounce up and are able and willing to undertake economic activity at the same time that men tend to remain docile," Ovsei Shkaratan, a professor at the Higher School of Economics, told RBC Daily. Such an opinion, the paper said, reinforces the belief that women are in their prime or full bloom at 55, and retirement at that age only prevents them from realizing their full potential. "Pension age for women to date should be extended to 60 years, and there is no reason to leave it at 55," Shkaratan said. "The current situation is discriminatory because women retire five years earlier, and consequently, their pensions are much smaller," Nazarov said.

Such arguments did not win over officials at the Ministry of Health and Social Development, however. Adjusting the minimum period of pension contributions, they said, would better fix the pension system than raising the age bracket. "In the future, the minimum period of pension contributions could be set at 20 years for women and 25 years for men,” the press service of the ministry said. “Receiving the maximum allowable pension should also depend on a 40-year minimum period of service for women and 45 years for men.” The officials believe that such a system would allow a worker to retire at any time, as long as the size of his or her pension is calculated on the basis of the length of service.

A report commissioned by the ministry last year concluded that even 30 years of hard work would not guarantee a Russian employee a decent pension. Due to an ineffective system of investment in pension savings, those who will retire in 2035 will be able to save up enough to pay off only 16 percent of an average state pension ($60 per week at the moment), said the report, cited by Vedomosti newspaper. The report also cites low salaries as another reason for pension troubles, as more than 80 percent of those with state pension insurance spend all their money on basic necessities. Currently, there are 7.5 million people participating in certain pension programs, the report said, while the remaining 50 million, who cannot save up because of low salaries, risk ending up with a pension of 25 to 30 percent of their salary provided by the state.

In addition to equalizing retirement ages for men and women, OECD experts want the government to gradually reduce and subsequently cancel the possibility of voluntary early retirement. "Most of those who take early retirement from service do so not because of disability, but rather as an incentive for some meritorious service," said Yulia Lezhnina, a lecturer in social and economic policies at the Higher School of Economics. "Such changes must be gradual and spread over a minimum of ten years to allow people to adjust and adapt."