''85% of citizens are 'outside the brackets' due to the current pension reform. They are thrown overboard''

Sergey Zvenigorodsky says there won’t be an easy solution to the pension problem

''85% of citizens are 'outside the brackets' due to the current pension reform. They are thrown overboard'' Photo: Maksim Platonov

The discussion linked with the government's intention to change Russians' retirement age isn't calming down in the country. In an interview with Realnoe Vremya, famous expert in pension issues Sergey Zvenigorodsky (Solid Management MC) tells why pensioners' life hasn't improved together with the retirement age rise in Europe and whether the scenario offered by the government will be softened.

''It was decided to shift a part of the country's obligations to businesses' shoulders''

Mr Zvenigorodsky, aren't authorities late with the pension reform as same economist Evgeny Gontmakher thinks? Or is it the best time for it, as, for instance, the Higher School of Economics supposes?

Actually, the pension reform began in Russia as early as 2001. It was already clear the generation of the 90s was small, while the next generation would be the same, but everything would be very bad when money reached the Pension Fund. Moreover, the money that, in fact, was stolen from the Pension Fund in the 90s hasn't been compensated by the country so far, though the fund has already received money from excess oil profits. The reform was to create a balance between incomes and costs of the budget since 2001, so that the country wouldn't worry about meeting social obligations and the population could live on a pension, not survive. Board Chairman of the Pension Fund Mikhail Zurabov thought the problem could be solved with the help of a funded pension. The option of increasing the retirement age was also considered then but was crossed out almost immediately – they looked, calculated and decided it wasn't suitable for the reform.

Why was the funded pension created? Why should it be effective? Firstly, it was decided to shift a part of the country's obligations to businesses' shoulders, particularly pension indexation. Secondly, the 'long' money appeared in the 2000s. Everything was bad in Russia in the 90s: there was a speculative capital, but factories were destroyed, the financial market wasn't very good. This is why it was decided to create the long money for businesses. In addition, pension funds were in embryonic form as well as insurance companies, the banking system was bad too. This is why the 'long' money was to take our fund and financial market to a higher level – so that we could both borrow money and make the foreign capital also enter our country, moreover, a real foreign capital, direct investments, not only speculative. There was another reason why the funded pension was created. For instance, if something was wrong with the pension sphere, it was possible to indicate a specific organisation: ''Look, this NGPF was bad!'', not the system. So there weren't big problems. In general, the funded pension was to solve several problems, particularly soften the consequences of the demographic crisis, which will last from 2022 to 2040. The Pension Co-Financing Programme for citizens and the creation of the pension capital were to become the second pillar of the reform (since 2009). But the capital wasn't created due to the crisis in 2008.

So it was supposed the population would switch to the voluntary pension system by 2019, that's to say, a person would get a pension from either himself or his employer or the whole population would be divided into two categories: those who save for their own pension and those who have a Soviet track record, which meant, they would get a pension from the country. But it didn't work – a crisis broke out in 2014, and the funded pension stopped playing an important role in the pension system. I think the funded pension was quite good unless the government's social and economic block decided to 'kill' it, thus disrupting the confidence in all pension reforms.

''PFR shifted the reform to the Ministry of Economic Development's shoulders, while the Ministry of Economic Development sent it to the Ministry of Finance, and the Ministry of Finance turned to the PFR again, and the Ministry of Labour whose main task was to solve the pension sphere's problem was created.'' Photo: abnews.ru

''A new crisis simply runs the risk of killing the West's pension system''

But are the crises guilty that the pension reform ran into a snag?

In 2010, it turned out nobody dealt with the pension reform at all – Putin was reported about it. They found out the PFR shifted the reform to the Ministry of Economic Development's shoulders, while the Ministry of Economic Development sent it to the Ministry of Finance, and the Ministry of Finance turned to the PFR again, and the Ministry of Labour whose main task was to solve the pension sphere's problem was created. In 2014, the government decided there was collected too much money for the funded pension. For instance, the country economised 400 billion rubles by indexing the funded pension, and it decided this 'piggy bank' could be cut to save the economy the following year.

And as an apologist, Kudrin says here: like, let's turn to western countries' experience (France, Greece) and increase the retirement age and save much money this way. But this economy will be the economy for the Pension Fund only – some people will retire as disabled people or look for loopholes anyway to work unofficially without paying taxes or won't work at all.

Pay attention, for some reason, we don't show statistics of the budgets of the countries with a high retirement age! While the picture looks as follows: no country has improved its statistics after some attenuation of the country and the pension funds' budget. It turns out the next step is to either increase the retirement age to 100 years or do something with the system without increasing the retirement age. Pensioners' life hasn't significantly improved together with the retirement age rise in any European country!

Why? What are the reasons?

The 2008 crisis hit the assets invested by European countries in the USA's mortgage-backed securities. Moreover, when people started to create voluntary pension insurance through NGPF in the West, they heard if they had invested €1,000, they would have got 10 times more, but it was hyped promises. And now the NGPF system is collapsing in the West, same Germany, though slowly. And a new crisis simply runs the risk of killing the West's pension system.

As for people's retirement age, which is higher in the West, it's known employers aren't eager to hire old people: it happens both in Russia and in the West. But it's more complicated in Russia. Yes, creative people can work longer, but they account for no more than 15%, in general, according to the Russian Statistics Service. 85% of citizens are 'outside the brackets' due to the current pension reform. They are thrown overboard. Semi-literate people with slow skills are thrown, people who can't do their job if it's difficult due to decreased reaction, poor hearing and so on. These people can work as consultants, they can work in education. But this all requires retraining of people, which means it requires money, big costs. But still, not every person who is older than 60 years will be able to become a web designer or sit in a stand selling jewellery with his weak legs all day long. A part of the population can't work after 60 years just physically!

''These people can work as consultants, they can work in education. But this all requires retraining of people, which means it requires money, big costs.'' Photo: Maksim Platonov

In addition, it's old people who will remain in their workplaces in big factories, will impede from hiring young people to these places. And here we have dissonance – it's both positive and negative. It's positive because young people will go to the places they aren't expected in, that's to say, they will create new markets, new spheres – computers, social networks, robotisation, new medical sectors, genetic engineering, space industry.

''We expect the reform to be softened''

What will the pension system look like in 10-15 years? What's the most probable scenario?

The modern pension system, in the way it has been existing in the world since the 19 th century and we know it, is likely to die out. People will likely have an old age state benefit or money they accumulated themselves. The problem is that 85% of old people in Russia have difficulties with learning something new, there are enough ill people, and the country should do something with them. And here, as I already said, the big problem with workplaces arises where they would bring profit to themselves and the country with an easy function. It means the country should help medium-sized businesses and shouldn't impede small businesses.

What will the president decide about the retirement age? The majority of experts are prone to suppose the current option is too much anyway. And even if it's reduced a bit, a problem of compensations to the people who lost their job five years to retirement will arise, which is very likely.

We expect the reform to be softened. Now it's difficult to say how much it will be softened. But believe me, if people talk about the reform, and if there are founded disagreements, the Kremlin writes it all down. It's wrong that both liberals and communists criticise one thing but don't see the big picture, they don't understand there can't be simple decisions here.

Authorities can decrease the new retirement age a bit, it's 100%. It's hard to say how much: people almost start to be at loggerheads on this issue at meetings of power bodies.

''We expect the reform to be softened. Now it's difficult to say how much it will be softened. But believe me, if people talk about the reform and if there are founded disagreements, the Kremlin writes it all down.'' Photo: Oleg Tikhonov (''Medvedev! How to reach the retirement? How to survive on a pension?'')

Where can the old generation be used? In the construction of new infrastructure (the same roads) because the current one is very bad. 800,000 citizens can be re-trained for this purpose, and there must be a state contract at least at a university level. But many people should understand it's time to collect money for retirement on their own in the next 10-15 years anyway. But they should save smartly from a financial perspective – not to enter pyramids, don't trust if a high profit is promised, not to take out many loans.

If many people are prone to speaking about softening the reform, does it mean we shouldn't expect citizens' protests against it?

There won't be serious speeches at all if authorities remember they should talk with the people anyway, and not only the president should talk via Direct Line but also functionaries at all the levels. If people who are related to this reform do it, any discontent will calm down.

By Sergey Kochnev