Passion for pensions

Myths about a well-fed old age

Sergey Shelin, Rosbalt News Agency

The Russian authorities seriously increased pensions the year before last, and since then they have been increasingly burdened by their own generosity. According to many signs, it is felt that the country's leadership is becoming more willing to cut government spending in this direction, either by reducing the number of pension recipients, or by increasing extortion to the Pension Fund, or even better – by doing both at once. It is generally assumed that after the presidential elections, the authorities with fresh forces will do just that.

In fact, the proximity of some really unpopular events on the pension front is not at all obvious. After all, only the government can go to them, which is not pretending, but really confident in popular support. However, conversations on the pension topic will definitely increase. At the same time, we have very few topics that would be shrouded in myths more than this one.

And the first of them is about the allegedly excessive share of GDP going to pensions. It is from this myth that the illusion arises that increasing the retirement age is a convenient and realistic way to at least partially solve the problem.

Another myth, purely popular, says that the retirement age cannot be increased in any way. After all, the life expectancy of Russian men is a little more than 60 years, and it turns out that then none of them will live to retirement at all.

The third myth, popular in intellectual circles and generally sympathetic to the authorities, boils down to the fact that the distributive pension system should be replaced with a funded one. Let working citizens contribute part of their earnings to private pension funds, which will put money into circulation and multiply them many times, and depositors in their old age will turn into rentiers and will fatten on accumulated capital. And by design it is progressive, and it is profitable for the state treasury.

Let's go in order. Since 2010, a festive year for our elderly, about 8% of Russian GDP is spent on pensions. The Pension Fund of the Russian Federation has other expenses (amounting to about 2% of GDP), some of which deserve the closest study, but now we are talking only about money actually distributed to pensioners. They are not very few, but not too many — about the same as the average for the OECD (Organization for Economic Cooperation and Development), although less than in most rich European countries.

It is unlikely to seriously increase this share — Russia is not so rich. At the same time, it is very naive to make plans to reduce it. It does not seem at all that in today's atmosphere the people will allow the authorities to reduce pension costs. It is better to proceed from the fact that in the future the amount of pension spending will be approximately the same or slightly higher.

Now let's move on to statements about the inadmissibility of raising the retirement age. In fact, a whole tangle of misconceptions has formed around this topic, among which the myth of male mortality is only the most popular.

Although everyone knows from personal experience that male pensioners are common, numerous and at the same time quite educated publicists, juggling statistical life expectancy, assure that any increase in the retirement age will finally deprive men of pensions. By the same logic, it should be added to this that it is time for women to raise the retirement age, and it should be raised steeply – in order to work out the twelve-year difference in life expectancy. But publicists, all as one, for some reason do not bring their arguments to this slippery point.

In fact, the extremely low life expectancy of men in our country reflects the shamefully high mortality rate in young and middle ages. And among the half of men who live to retirement age, the mortality rate corresponds to the world.

According to Rosstat, approximately 13% of Russian men (8.5 million) are aged 60 years and older. Among women, the same age group is 22% (17 million). In total, there are 25.5 million women and men over the age of 60 in Russia (18% of the total population of the country). In Germany, a country with a stable and reliable pension system, approximately the same proportion of those who are 65 years old or older. To reduce this share, the retirement age there is raised from 65 to 67 years.

Therefore, in order for the burden on the pension system to be the same as in Germany, the retirement age for both men and women should be somewhere around 60-62 years. To imagine that this would mean raising the bar only for women, only a person completely unfamiliar with Russian realities can. In fact, according to rough estimates, a man in Russia becomes a pensioner on average at 56, and a woman at 52. The number of professions that allow early retirement is huge. There are over 40 million pension recipients in our country — more than 28% of the population, which is probably a world record. This explains why, with a fairly tolerable share of GDP allocated to pensions, the size of most payments to pensioners remains obscenely small.

Myths mask the main feature of our pension system: receiving a pension and termination of employment are almost unrelated to each other. The average Russian is not a slacker who retires at the age of 50. According to official data, about ten (and in fact, rather, even fifteen) million pensioners out of the forty mentioned continue to work. On average, people stop working by the age of 62, when they really lose their ability to work.

In the same Germany, pensioners also sometimes earn extra money, but there are many times fewer of them there than in Russia, and if their earnings are any decent, then their pension is reduced. On a truly large scale, the phenomenon of a working pensioner exists only in our country.

Moreover, this is a large and active stratum of Russians, causing legitimate concerns of the authorities. It was his street protests in 2005 that disrupted the initial scenario of monetization of benefits. All the projects circulating at the top of raising the retirement age are crossed out in advance by the assumption that people who are used to receiving both a salary and a pension at the same time simply will not allow half of their income to be taken away from them.

But this situation is not normal. Due to the fact that pensions are distributed among an exorbitantly large number of recipients, older categories of pensioners remain on meager rations – just those who can no longer work by age and need support most of all.

If in 2011, the same 8% of GDP went only to those who are 60 years old or older (there are only 25.5 million of them, including 3 million who do not have work experience and receive a social pension by age), as well as those who receive disability and survivor pensions (there are now 4 million), then the recipients of pensions would not be more than 40 million, but less than 30 million. Considering that social pensions, disability pensions and survivor's pensions are noticeably less than labor pensions, the average labor pension would have amounted to 14 thousand rubles per month last year. This is approximately 60% of the average accrued salary in the same year (23.7 thousand rubles) and one and a half times more than today's officially announced size of the average old-age labor pension, which after the next indexation from February 1, 2012 is equal to 9.5 thousand rubles.

Persuading working pensioners (at least those who are under 60 years old) to give up their pensions is not such an insurmountable difficulty. The authorities should only, firstly, convince them that the share of pensions in the gross product of the country remains the same, and confirm this with a sharp increase in payments to senior pensioners. And secondly, to work to ensure that stagnant wages go up in those sectors where jobs for these people are concentrated. Both are doable tasks. However, not for those authorities with whom we are used to dealing until now.

And, finally, about the mythology of accumulative pensions, associated for the country's leadership with the hope of shifting pension problems directly onto the shoulders of citizens.

Saving money all your life and then living on capital is a good idea only for those who are far not only from our, but also from world realities. It makes sense to save money if financial systems are unshakable. And there is a reason to invest them in promising assets, as private pension funds do, if asset prices do not jump up and down.

But in almost all rich countries, so-called anti-crisis programs imply regular financial injections into the economy. Maybe this is wise and competent from the point of view of momentary economic concerns, but all previously made monetary savings, including pension ones, lose their purchasing power at the same time. For approximately the same reasons, prices on world stock markets are now constantly tumbling. During the crisis of 2008 and 2009 in the OECD as a whole, assets in which private pension funds invested fell in price by about a quarter and are only now returning to previous levels – and no one will say for how long. This is absolutely not what the depositors of Western pension funds dreamed of, and what they were promised with such touching sincerity. Unlike the XIX century, today's world is not very cozy for rentiers.

And in countries such as Russia, the situation is aggravated by the traditional disrespect of the authorities for property. Who can guarantee that the state will not suddenly take away money from some prosperous private pension fund for some of its urgent needs - for a loan or for good? Or it will simply accelerate inflation, which will reset any savings.

Therefore, let private savings funds remain for those who are not poor and prone to commercial risk. The overwhelming majority of citizens have a reason to rely on the state distribution system and keep an eye on the authorities so that they do not try to destroy it.

If we clear our pension system of myths, then it is not so difficult to bring it into a meaningful form. Only it's time for the top to give up trying to make it cheaper, and everyone else needs to stop seeing it as something more than just a state support mechanism for those who cannot work due to age.

Portal "Eternal youth" http://vechnayamolodost.ru
22.02.2012