The junctions of pension reforms: Russian and international experience

Recent decision to raise retirement age in Russia is compared with alternative ways of pension system adjustment to population ageing. We conclude that postponing retirement was superior in terms of public welfare as compared to increasing public spending on pensions or lowering pension size relative to wages. Unlike advanced countries, which apply mainly a combination of higher effective retirement age, less generous pension benefits, and higher pension spending, Russia used various adjustment tools in sequence: sharp decline in pensions to wage ratio in 2002—2007 was followed by a marked increase in pension spending (which hiked almost 3 p.p. of GDP over 2007—2017). Some 2/3 of this growth was attributable to the cut in other spending (mainly “productive”, i.e. growth-enhancing), and 1/3 was financed by a redistribution of income from employees to pensioners. The general decision to raise retirement age thus was fully justified, but its parameters look reasonable only on average. Estimates based on cross-country analysis evidence that retirement age matching healthy life indicators anticipated for Russia would be 63/62 for men/women. Actual decision to increase retirement age to 65/60 maintains sharp gender distortions: the retirement age will remain too low for women and will get too high for men. Fiscal effect of higher retirement age are calculated by comparing pension spending ensuring constant pension to wage ratio under the old and new retirement ages. We find that this effect will stabilize around 3% of GDP in some 10 years after the start of reform. A bulk of this effect is in a sense “virtual”, as it mainly makes possible to evade further increase in pension spending. “Genuine” effect can be estimated as some 1% of GDP — these are public funds saved and available for different purposes, say for supporting programs increasing healthy life expectancy.