Pension Reform in Russian Federation Outcomes, International - - PowerPoint PPT Presentation

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Pension Reform in Russian Federation Outcomes, International - - PowerPoint PPT Presentation

Sep 04, 2022 485 likes •626 views

Pension Reform in Russian Federation Outcomes, International Trends, and Potential Next Steps Zoran Anui Senior Economist Social Protection and Labor Global Practice, World Bank RF's 2018 pension measures not surprising ... - 2016

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Pension Reform in Russian Federation – Outcomes, International Trends, and Potential Next Steps

Zoran Anušić Senior Economist Social Protection and Labor Global Practice, World Bank

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RF's 2018 pension measures not surprising ...

2 2011 contribution rate increase

  • 2016 suspension of indexation
  • 2015 increase of vesting period

to 15 years

  • 2018 PAYG pension

increase

  • 2018 Retirement age

increase

Source: FIAP, 2019

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... given Russian Federation's fast aging

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Source: D. Pomazkin (2018)

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Aging in RF is much faster than in EU

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  • 16.0
  • 14.0
  • 12.0
  • 10.0
  • 8.0
  • 6.0
  • 4.0
  • 2.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

years

Life expectancy improvement in Russia vs. EU

Russia-EU, total Russia-EU, men Russia-EU, women

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Improvements in life expectancy would persist

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0.0 2.0 4.0 6.0 8.0 10.0 12.0 BE BG CZ DK DE EE IE EL ES FR HR IT CY LV LT LU HU MT NL AT PL PT RO SI SK FI SE UK NO EU* RU (low) RU (mid) RU (high)

years

Change in life expectancy at birth 2016-2035, EU and Russia

women men

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Replacement rates, among the lowest in OECD ...

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0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0 100.0 United Kingdom Mexico Poland Australia Chile Ireland Japan Slovenia Germany United States Korea New Zealand Canada Switzerland Norway Czech Republic Belgium Latvia Estonia OECD Greece Sweden Finland Hungary France Slovak Republic Israel Iceland Turkey Spain Portugal Luxembourg Austria Italy Denmark Netherlands South Africa Russian Federation EU28 Saudi Arabia Indonesia Brazil Argentina China India

Gross replacement rate, 2017, men

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... will increase in short run ....

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Размер средней пенсии по старости Рост пенсий в реальном выражении Источник: Минфин России Источник: Минфин России

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... But decline in medium and long run

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  • 40.0
  • 35.0
  • 30.0
  • 25.0
  • 20.0
  • 15.0
  • 10.0
  • 5.0

0.0 5.0 10.0 PL ES LV IT LT EE EL HR RU (pre reform) 2015-35 LU PT SE EU* RU (reform) MID SK FR DE IE RU (reform) OPT MT BE DK CZ RO FI CY SI AT HU BG

Change in replacement rate 2017-2050

Sources: EU Aging Report 2018; Russia: Gorlin and Lyashok (2019)

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Overall outcomes of 2018 reform are uncertain

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  • Longer retirement ages would generate fiscal savings and higher

pensions,

  • but other measures, especially pension valorisation (7%, 6.6% 6.3%

in 2019, 2020 and 2021 and 5.5% in 2023 and 2024) may result in strong increase in pensions 2019-2024 and higher fiscal costs; uncertain from 2025 with regular indexation, but likely to decline steadily,

  • MOF and PFR project optimistic revenues with unchanged

contribution rates (22% and 10% above top bracket) to finance higher PAYG costs,

  • It would materialize only with strong growth in activity and wages.
  • There is a risk of PAYG pension expansion and narrowing the fiscal

space for other adequacy improving measures (like AES or reviving 2nd pillar).

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Automatic enrollment systems around the world

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  • AEs in operation: Australia (1992), New Zealand

(2006), Italy (2007) Israel (2007), UK (2012), Canada/Quebec (2014), Turkey (2018).

  • AEs delayed, underway or announced: Georgia,

Denmark, Poland, Ireland, Lithuania, Thailand, Germany (occupational AE going mandatory?).

  • Poland swapping 2nd pillar for AEs: AE starts in

July 2019 (with large firms); AE rate to grow from 3.5% to 6.5% (employer+employee; Govt welcome bonus); 25% lump sum, the rest programmed withdrawals.

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Russian Automatic Enrollment – Questions

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  • What should be target contribution rate for AES in

Russian Federation to compensate for falling adequacy? Seemingly 10%+

  • Would employers and Government (or National

Development Fund) participate?

  • What contribution rate would individuals choose?
  • Would the "escalator" work?
  • Would participants trust the system?
  • What would be the opt out rate? Would it be higher

among the low income members?

  • Would the administrator work efficiently, transparently

and neutrally?

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Conclusions and possible next steps

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  • October 2018 retirement age increase was needed given

life expectancy improvements,

  • Pension adequacy would improve only in the short run, with

higher PAYG expenditures narrowing the fiscal space,

  • For adequacy improvement additional pension savings and

contributions seem unavoidable (10%+), through introducing Automatic Enrollment System with Government's matching and/or unfreezing 2nd pillar (moratorium until 2021).

  • More PAYG reforms (early retirement, reduced or

subsidized contribution rates for some categories, sustainable indexation, disability assessment) are needed to improve the fiscal space for adequacy improvement.