Russia Fights Pension Crisis
Social Security Woes: Pensioner Vote Hamper Reform in Russia

Robbing Pyotr to pay Pavel: the working generation is being called upon to plug the fiscal hole in the Russian pension system.

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Amiel Ungar,

Vladimir Putin
Vladimir Putin

It sounds familiar: The Social Security system is headed for a financial cliff and the government cannot afford to kick the debt can further down the road. This time,

however we are talking about Putin's Russia and not the United States and Western Europe.

Vladimir Putin has announced his opposition to raising the retirement age. Retirees in Russia account for 40% of the voters, but actually account for more, since they make a point of voting.

The International Monetary Fund has recommended that Russia raise the retirement age for men and women to 63 by 2030. The current retirement age is 60 years for men and 55 years for women, but in addition, a number of professions such military veterans and state bureaucrats can retire even earlier.

One reason for this generosity is lower life expectancy in Russia.

The Russian pension system is running a deficit of $42 billion, but given the country's woeful demography, this financial hole is going to get a lot worse. Now there are 120 workers for 100 retirees but this figure will change shortly to 100 workers per 100 retirees.

During the last elections Vladimir Putin made a "read my lips" pledge that he would not raise the retirement age. The government has come up, under Putin's prodding, with a stopgap measure. It will take money from the employer contribution to the Social Security scheme that is normally used for investment purposes in the Russian capital market and put it into the government pension pot.

This has two problems: It deprives the capital markets of investment capital and it effectively bilks the active working population of funds that they will need for their own retirement, probably under more adverse conditions.