Finance Ministry’s Nesterenko: retirement age increase ‘inevitable’

Two Babushkas file photo

KRASNOGORSK. Oct 9 (Interfax) – The interim decisions approved for next year in light of the budget deficit do not eliminate the need to raise the retirement age.

The draft budget for 2016 approved by the government this week indexes pensions by just 4%, rather than the actual inflation rate in 2015 (about 12%), with an option to conduct a supplementary indexation in July. In addition, the indexation will not apply to working pensioners. The budget process featured no substantive discussion on the issue of increasing the retirement age, which the Finance Ministry is constantly promoting, Finance Ministry officials said.

“There really are problems in the pension system. Our view, the view of the Finance Ministry – we are not dropping this, despite the various political decisions – is that the solution lies in raising the pension age,” First Deputy Finance Minister Tatyana Nesterenko said in Krasnogorsk on Friday at a finance forum.

Our goal in the budget process is to reduce the budget’s reliance on state non-budgetary funds. The pension system is in need of profound reform. The problem consists in the serious demographic changes, in the market situation,” Nesterenko said.

On the bright side, as average wages in the economy decline, the income replacement ratio of pensions is increasing, despite the low indexation rate. “Even without taking any actions, we will practically reach that political goal that was set some time ago to reach a certain ratio of pensions to wages by sometime around 2020,” she said, noting that the 4% indexation with the possibility of one more increase is a compulsory decision which “is not aimed entirely at achieving the main goal of social policy, reducing poverty,” she said.

“We have a colossal amount of work ahead of us in terms of the proposals to lower the pension system’s reliance on the federal budget. The next challenge we are resolving is to slow the pace of salary increases. The decision has been made for all federal entities, state employees, military personnel to not index wages and salaries at all for another year,” Nesterenko said.

“We understand and expect that this is very important from the standpoint of setting examples for economic agents, and economic agents, via a reduction in these rates, create opportunities for investment. It is important for us to promote every incentive for investment. It is important for us to create every incentive for economic agents to make a profit – and that can be done through cost cutting, labor productivity, cuts to salaries, which in Russia are rising a lot faster than labor productivity – this is a fact. Therefore, our contribution to reducing growth in inflation is that we have halted salary growth,” she said.