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The Russian pension system's 2018 deficit will be twice as big as predicted

Source: Meduza

Russia’s Labor Ministry has amended the Pension Fund’s 2018 budget to reflect a deficit that's more than twice as high as predicted, rising from 106.6 billion rubles ($1.7 billion) to 256.8 billion rubles ($4.1 billion). The Pension Fund is expected to earn just 66.7 billion rubles ($1.1 billion), while spending 83.5 billion rubles ($1.3 billion). Spokespeople for the Pension Fund told the magazine RBC that the revised forecast is the result of cuts in federal subsidies and the rising costs of Russia’s pay-as-you-go pension payments.

The Pension Fund's “distributive” budget (the money collected from working Russians and paid to current retirees) will be more than 150 billion rubles underfunded in 2018, and the Labor Ministry plans to plug the gap with money taken from the fund's “transferrable” budget.

Policymakers in Moscow who advocate raising the retirement age in Russia cite the Pension Fund’s rising deficits as one of the key justifications. The news media has repeatedly published stories that the government is considering this unpopular move, but the Kremlin has always said it has no immediate plans to institute such reforms.

How does Russia’s pension system work?

In 2014, Russia suspended its experiment with a market-based savings program that allowed younger workers to invest up to six percent of their income back into the economy. Under this system, another 16 percent of these people’s salaries went to the pension system’s “insurance component,” funding both “fixed basic payments” (the pension benefits guaranteed to all pensioners) and individual accounts (allowing higher earners to receive slightly larger pensions). The moratorium on market accounts is supposed to expire in 2020.

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