Pensions in Russia have been declining in real terms for ten months in a row due to high inflation. According to Rosstat, in November, the fall in annual terms was 2.8%. True, this is data without a lump sum payment of 10 thousand rubles, which was transferred in September before the elections.
In nominal terms, the average pension in the Russian Federation in November 2021 amounted to only 15,847 rubles and increased by 5.3% compared to November 2020. The average size of assigned pensions in October 2021 is estimated at 29.0% of the average accrued salary in the country against 30.3% in October 2020. Annual inflation in the Russian Federation in November 2021 reached 8.4%.
It is clear that with an average pension of 15 thousand rubles, taking into account current prices, there is no need to talk about a decent life for pensioners. According to experts, the best that older people can count on so far is additional one-time payments, as in September 2021 or in 2017, to compensate them for the rise in prices (and, recall, after raising the retirement age, the authorities vowed that they would index pensions higher inflation rate).
In 2022, one cannot count on a rapid increase in pensions either. As the interviewed experts explained to “SP”, for this it is necessary to solve two main problems – the growth of wages, as well as the increase in insurance deductions. But so far, no special progress has been seen in these areas.
– What Rosstat now reflects is an annual situation, – explained “SP” Vice-Rector of the Academy of Labor and Social Relations Alexander Safonov… – It is connected with the fact that, in accordance with the current legislation, we are indexing pensions of the previous period. When the indexation took place on January 1, 2021, it offset the 2020 inflation. And after January 1, when inflation rises, the purchasing power of pensions decreases. It cannot be otherwise.
At the same time, in 2021 there was a one-time payment of 10 thousand rubles to pensioners. Taking into account this additional payment, the indexation was not the calculated 4-plus percent, but about 11%.
“SP”: – But pensions are still very low on average. What steps should the authorities take so that they begin to grow not only nominally, but also in reality?
– Pension is compensation for lost earnings. It cannot be more than the level of wages from which it is formed. In accordance with the universally recognized Convention No. 102 of the International Labor Organization (ILO), the pension standard should be 40% of the lost earnings.
We have 43 million pensioners receiving insurance pensions. To provide them with 40% of the lost wages, at least two employees must contribute at least 20% of their wages. The number of people working in the labor market should be about 86 million people (now it is about 76 million people – editor’s note)
In order for pensions to be high, it is necessary to solve the main problem – the growth of wages. If salaries do not become high, then pensions will also be low, because the charges come from them. If our median salary is within 35 thousand rubles, then 40% of this amount is about 14 thousand.
We need to work to ensure that the economy has as many high-wage jobs as possible. For this, the structure of the economy must reflect all modern requirements, have industries associated with a high level of added value, and not only with the production of oil and gas.
The second point is the state policy on the formation of minimum standards for wages. Unfortunately, the current minimum wage does not stimulate the employer to form a sufficient level of wages. If these standards are raised, the level of wages in general will also rise. The state should also allocate more funds to finance salaries in budgetary sectors.
When these conditions are met, we can hope for a stable pension insurance economy. Otherwise, we will have to resort, as now, to indexation only by the inflation rate and to lump sum payments in order to somehow compensate for the rise in prices for pensioners.
Associate Professor of the Russian Academy of National Economy and Public Administration, Candidate of Economic Sciences Konstantin Dobromyslov believes that in addition to increasing wages, it is necessary to increase the amount of deductions from employers.
– The President at a recent big press conference promised that he would compensate for the current inflationary losses to pensioners. Pensions should be indexed in line with today’s inflationary parameters.
Globally speaking, in order for our pensions to grow, the revenues of the Pension Fund budget need to grow. To do this, you need to increase the rates of insurance premiums, because money is not taken out of thin air.
“SP”: – But is it so easy to increase contributions? Does this require a political decision?
– Our employer pays insurance premiums. You understand that labor for an employer is always a cost. Insurance premiums are paid from the wage fund. All these contributions in total, not only pension, but also social, and compulsory health insurance, amount to 30%. It turns out that the cost of labor for the employer is 30% higher than the employee’s salary. And the easiest way to cut production costs is to cut wages.
On the contrary, we are talking about the need to increase wages, since our work is underestimated. Insurance premiums need to be increased to match the cost of a decent pension. Raising the retirement age was a drop in the ocean and had practically no effect on pension payments.
There is no secret here. If you want to receive high pensions, pay big wages and deduct a lot for your pension, that’s all.
Professor of the Department of Finance and Prices of the Plekhanov Russian University of Economics Yulia Finogenova talked about ways to independently increase their pension, without waiting for growth from the state. True, for this you need to attend to the issue of pension provision very in advance.
– Now pensions are losing in real terms for the simple reason that inflation is very high, and we cannot hope that the rise in prices will end quickly next year. Therefore, when we talk about the inflation indexation of pensions, it has not happened. Indexation this year was carried out at 5.9% with inflation at 8.4%.
It is possible that next year the indexation will be higher, but so far we do not know the final parameters of the PFR budget. In such a situation, I’m afraid we cannot promise that pensions will not continue to decline in real terms. Most likely, their purchasing power will fall.
The government could support pensioners amid the depreciation of their income with one-off payments, as in 2017, when the indexation was also below the inflation rate. Perhaps at the beginning of next year or in the spring there will be some payments that will help pensioners survive the negative inflationary background.
“SP”: – Are there any ways to increase the pension in order to at least compensate for inflationary losses?
– There are two options to increase your pension without making your own savings. The first is to retire later. Retirement even five years later gives an increase in insurance pension in the region of 40%. True, with inflation as high as it is now, these benefits are largely nullified. It should also be remembered that at the onset of 80 years, the basic part of the pension is doubled.
The second point is the monetization of benefits. You can refuse some of the benefits and receive them in the amount of about one and a half thousand rubles a month, as a supplement to your pension.
For a higher pension, it is also important to receive a “white” salary so that all contributions are paid for the employee. Then the person will accumulate more individual retirement points.
A more reliable option for improving the standard of living is non-state pension savings that a pensioner can make. These can be individual retirement plans or non-state funds. But this issue needs to be taken care of at least 15 years before retirement, and ideally, in order to have a decent pension, you need to start saving for it practically from the first salary.
Unfortunately, there are no other options for a quick increase in pensions under the current state pension system. We have a pay-as-you-go system, and its main idea is that how much money it received in the form of deductions, it distributed so much.
The state of the Pension Fund largely depends on the state of the economy. The amount of the pension cannot be higher than what was collected. Therefore, in almost any country, state pensions are not very high.
Another thing is that in most developed countries the pension system is multilevel. Pensions are formed from several sources – a pensioner receives not only state, but also non-state pensions, and payments under corporate programs. Unfortunately, in our country this system has not received such a development, and pensioners have to rely on their own savings.