Russia

February 2, 2007

An elderly Communist sympathizer takes part in the rally staged on Tverskoy Boulevard . The slogan on the woman's shirt reads: ''I voted for Putin and now I would be deprived of my pension.''

Russia’s Health and Social Development Ministry has submitted to government the proposals that would drastically change pension reform procedures. The documents duly sealed by Health and Social Development Minister Mikhail Zurabov are available to Kommersant.

The idea of the ministry is to exclude a saving component from mandatory pension insurance. So, hundred billions of rubles that are currently managed by Vneshekonombank will go to pay off the deficit of the Pension Fund of Russia. The nation will have to move to private pension funds and asset management companies and fund the pensions for its own account, benefiting although from some tax remissions.

“In view of the problems revealed when implementing the accumulative component of the pension reform,” the documents spell out, “it is proposed to separate in future the institute of pension accumulation from the institute of mandatory pension insurance.”

The actual proposal is to stop from 2008 transferring to Vneshekonombank the pension deductions of those citizens who have failed to pick out some private management company for this purpose. Those funds that are deducted under the Unified Social Tax will go to finance the ensured portion of pensions and cover the shortage of the Pension Fund of Russia.

In essence, Zurabov again attempts to encourage the nation to move to the private companies. The purpose to attain is to make the pension market two-level starting from 2013. The first component will be the PAYG (pay as you go) system, which will be controlled by the government. The second one will be represented by private pension savings, although independent from the government and encouraged by tax benefits but stripped of all state guarantees at the same time.

So, the actual idea of the minister is to wind up the pension reform by 2013. Those willing to save will better do it on their own behalf, Zurabov thinks.