August 20th, 2012

Putin’s decisions lead to a collapse of the Russian pension system


Putin boosts pensions at the expense of younger generations

The Russian government failed to deliver a strategy for a new pension reform, missing the deadline set by the President of Russia.

Ministers, responsible for the economic and financial policy, haven’t reached a compromise on the future of the Russian pension system. There is no easy solution to a pension crisis, since Putin has promised not to raise both the retirement age and the mandatory pension contributions while radically increasing pensions.

To resolve the current pension crisis, the government is considering to abandon the mandatory funded pension scheme, introduced only a decade ago. According to Mikhail Dmitriev, the head of The Centre for Strategic Research,  some government officials propose liquidation of non-state pension funds and spending already accumulated savings on current pensions.

The dismantling of the mandatory funded pension system will hit mainly middle class: citizens younger than 45 years with income higher than average. These people live in big cities, rarely vote and are unlikely to vote for Putin and his party anyway.

Since the Russian parliament rubber stamps all proposals of the government, there will be no public discussion of the new pension reform. Non-transparent decision making procedure as well as radical options under discussion will undermine people’s fragile trust to pension system and once again increase risks of investing in Russia.

The Center for Strategic Research

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