## _wp12201 - References

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### I. Introduction — context and policy challenge
- Public pension reform in Russia is a key policy challenge.
- To combat the effects of the global financial crisis on the economy in 2009–10, Russia undertook a large fiscal stimulus of about 9 percent of GDP, mainly comprised of permanent measures including an increase in pension benefits.
- The end-2011 nonoil deficit is still more than double the level considered consistent with equitable use of the oil wealth across generations (Gust and Zakharova, 2012) and should be reduced in coming years.
- Durable fiscal consolidation will need to be underpinned by fundamental structural reforms, including in pensions and healthcare.
- An aging population implies reforms will be needed to contain future pension spending.
- Several proposals for pension reform have been put forward, including Strategy 2020 (2011), Dmitriev (2011), and Gurvich (2010). The Ministry of Labor, in cooperation with the Pension Fund of Russia, federal government authorities and the expert community, was expected to present pension reform proposals to the government in October 2012 under the Strategy for Pension System Long-Term Development till 2050.
- This paper presents: projections of pension spending as a share of GDP in the absence of reforms; the impact of some proposals to increase the pension age and reduce early retirement; and alternative proposals.

### II. Russia’s current pension system — structure and parameters
- System introduced in 2002; after 2010 the basic pillar folded into the pay-as-you-go portion.
- Focus: old-age labor pensions (disability and survivor labor pensions also part of system).

Key parameters and features:
- Retirement age: 60 for men/55 for women with minimum of 5 years contribution, but many provisions for even earlier retirement.
- Basic pension:
  - 3,170 rubles/month, but higher for those aged 80 or above, disabled persons, those caring for disabled persons or those who spent at least 15 years working in Arctic areas.
  - Indexed to average wages, but can be limited by availability of revenue.
  - As of 2010, the basic pension was about 12 percent of the average wage.
- Notional Defined Contribution (PAYG insurance component):
  - Notional account system, based on actual contributions made, with an assumed 19 years of benefit receipt at the normal retirement age beginning in 2013, phased in from the assumed 12 years in 2002.
  - Conversion factor: amount in the account is divided by 216 (18 years of benefits) to get the monthly pension and this conversion factor is scheduled to increase to 228 (19 years) by 2013.
- Funded component:
  - Based on individual contributions and interest earned on those contributions.
  - Interest rate on contributions: Interest rate provided by fund chosen by individual.
  - Under the default option, about 85 percent of contributors and assets are currently in the default option (Rudolph and Holtzer, 2010).
  - Default fund real annual return over 2004–2009 was -3.9 percent.
- Contribution rates:
  - Total statutory contribution rate is 22 percent of wages up to an annual cap set at about 165 percent of the average wage (512,000 rubles).
  - Of this contribution, 6 percent of wages is diverted to the funded defined contribution component for younger individuals.
  - 16 percent for those born before 1967, up to 512,000 rubles; 10 percent for those born from 1967 and later up to 512,000 rubles (this 10 percent contribution goes to fund the basic portion).
  - 6 percent for those born in 1967 and later up to 512,000 rubles.
  - Earnings above the annual cap pay a 10 percent tax rate to finance basic pensions.
- State pensions and allowances:
  - State pensions (including early pensions to civil servants and military personnel, disability social pensions, and social pensions for people older than the retirement age who are not entitled to other pensions) and monthly allowances to veterans, the disabled, and persons affected by radiation exposure.
  - PFR funds a benefit top-up to the “subsistence minimum level” (about 20 percent of the average wage, varying by region). Top-ups from PFR and regions together amounted to only 0.3 percent of GDP in 2010.
- Early/Effective retirement:
  - Average effective retirement age estimated in the range of 52–54 for women and 54–58 for men (Dmitriev (2012), Gurvich, and Sonina (2012)).
  - Nearly 30 percent of pensioners retire before the statutory retirement age.
  - Numerous pathways to early pensions (Arctic region work records; mothers with five or more children or disabled children; unemployed males at ages 58–59 and unemployed females 53–54; men with at least 10 years in hazardous employment and females with at least 7½ years; no minimum retirement age for certain professions).

### III. Spending and coverage statistics (2000–2010)
- Pension Spending (percent of GDP), selected years (Table 2 highlights):
  - Base pension: 2000: 1.9; 2001: 1.8; 2002: 1.6; 2003: 1.4; 2004: 1.6; 2005: 1.4; 2006: 1.8; 2007: 2.2; 2008: 2.7; 2009: (missing value in table); 2010: (table shows elsewhere ~12.2 percent of average wage for base pension replacement).
  - Insurance pension: 2000: 4.0; 2001: 3.9; 2002: 3.5; 2003: 3.6; 2004: 3.0; 2005: 2.9; 2006: 3.0; 2007: 4.1; 2008: 5.2; 2009: (table continues).
  - Allowances: 2000: 0.2; 2001: 0.2; 2002: 0.3; 2003: 0.8; 2004: 0.9; 2005: 0.9; 2006: 0.8; 2007: 1.1; 2008: 1.0.
  - Total, pensions and allowances: 2000: 4.5; 2001: 5.5; 2002: 6.1; 2003: 5.9; 2004: 5.5; 2005: 5.9; 2006: 5.5; 2007: 5.2; 2008: 5.5; 2009: 7.4; 2010: 8.9.
- Replacement rates (percent of average wage), selected series:
  - Total, pensions and allowances: 2000: 32.3; 2001: 32.9; 2002: 30.8; 2003: 30.2; 2004: 32.2; 2005: 30.5; 2006: 27.5; 2007: 28.6; 2008: 32.9; 2009: 40.2.
- Demographics:
  - Pensioners (million): 2000: 38.4; 2001: 38.6; 2002: 38.4; 2003: 38.2; 2004: 38.2; 2005: 38.3; 2006: 38.3; 2007: 38.5; 2008: 38.6; 2009: 39.1; 2010: 39.7.
  - Percent of pensioners under the retirement age: 2000: 28; 2001: 30; 2002: 30; 2003: 30; 2004: 31; 2005: 31; 2006: 31; 2007: 30; 2008: 29; 2009: 29; 2010: 28.
  - Ratio of population 65+ to population 15-64: 2000: 18; 2001: 18; 2002: 18; 2003: 19; 2004: 19; 2005: 19; 2006: 19; 2007: 18; 2008: 18; 2009: 18; 2010: 18.
- Overall, total spending on pensions and allowances add up to about 9 percent of GDP (around 2010).
- About 30 percent of this spending is devoted to the basic pension, 60 percent to the insurance component and 10 percent to allowances.
- Allowances were expanded in 2005—from under 0.3 percent to about 1 percent of GDP—as part of the monetization of benefits.
- Pensions and allowances increased relative to the average wage from 27½ percent in 2007 to 40 percent in 2010.
- In 2012, the payroll tax rate was reduced from 26 percent of wages to 22 percent. The revenue loss of this reduction is estimated to be 0.5 percent of GDP.

### IV. Challenges from aging populations — common issues and demographic drivers
- Key challenges: ensure adequate incomes in retirement, reasonable funding burdens, long-term sustainability, and system flexibility.
- Demographic highlights:
  - Life expectancy at age 60 in Russia is lower than in several other countries—the gap to the best performing country in emerging Europe (Poland) is 3.3 years for females and 2.2 years for males.
  - Life expectancy is projected to rise by nearly 4 years over 2010–2050.
  - Fertility rates over 2005–2010 stood at around 1.4 (children per woman).
  - Fertility rates across Eastern Europe are projected to increase to nearly 1.8 children per woman by mid century, remaining below 2.1 replacement rate.
  - Old-age dependency ratio (population 65+ to working age population) is projected to nearly double from around 18 percent to 36 percent between 2010 and 2050.
- Russia’s level of pension spending (nearly 9 percent of GDP) is similar to emerging Europe and advanced economies, and substantially higher than emerging economies outside Europe.
- Pensions are about 23 percent of general government primary spending in Russia, about the emerging Europe average, compared to 20 percent in advanced economies and 13 percent in emerging economies outside Europe.

### V. Projecting the impact of aging on pension spending — identity and baseline projection
- Decomposition identity: PE/GDP decomposed into old-age dependency ratio; eligibility rates (pensioners per population 65+); replacement rates (average pension to average wages); and labor force participation rates (inverse of employment ratio).
- Baseline assumptions: replacement rate remains at its current level (recent increases to about 40 percent of wages are assumed maintained).
- Baseline projection:
  - Pension spending projected to increase from 9 percent of GDP in 2010 to 12 percent in 2030 and 16 percent in 2050 (Figure 4).
  - The present discounted value of increases in pension spending over 2010–50 is about [105] percent of 2010 GDP.
- Comparative perspective:
  - Emerging Europe excluding Russia: average public pension spending projected to remain stable at about 9 percent of GDP until 2030 and increase to only 11 percent of GDP by 2050.
  - Advanced economies: spending projected to increase from 8 percent of GDP in 2010 to 11 percent in 2050.

### Box 1. What Have Other Countries Done? — international experiences and lessons
- Common reform themes in advanced and emerging economies over past two decades:
  - Reducing replacement rates via lowering accrual rates (Greece, Korea); extending reference periods (Finland, France, Greece, Portugal, Spain); introducing sustainability factors (Germany); automatic pension formula changes via notional returns (Austria, Italy, Sweden).
  - Tightening eligibility mainly by increasing statutory retirement ages (examples: Italy, Japan, Turkey, Germany, Spain, United States, Ireland, United Kingdom).
  - Increasing incentives for later work by tightening early-pension eligibility and moving to actuarially fair payouts.
  - Introducing anti-age discrimination legislation (Australia, the European Union, New Zealand, the United States).
- Reforms in emerging Europe included equalizing male and female retirement ages (Estonia), reducing benefits (Poland), raising retirement ages (Hungary, Lithuania), reducing early-retirement benefits, and introducing mandatory funded private pensions (Estonia, Hungary, Poland, Romania) with varying coverage and transition speeds.
- Crisis-period reversals: some countries redirected contributions back to public system (Latvia, Lithuania, Poland); Hungary nationalized pension fund assets.

Choices and proposals for Russia — major reform dimensions:
- Three main reform dimensions for a PAYG system:
  - Reducing the generosity of the system (replacement rate);
  - Curtailing eligibility (reducing the number of people receiving a pension);
  - Increasing revenues (raising contribution rates).
- Reforms should preserve the system’s role in alleviating elderly poverty, contribute to fiscal consolidation, address equity, and support growth.

A. Reducing replacement rates — projections and implications
- Baseline projected public pension spending if replacement rates maintained: from 9 percent of GDP in 2010 to 12 percent in 2030 and 16 percent in 2050.
- To keep pension spending at its current level, replacement rates would have to decline from about 40 percent today to 28 percent in 2030 to 20 percent in 2050.

B. Reducing pension eligibility — retirement-age scenarios and fiscal impact
- Specific scenarios and estimated impacts:
  - Equalize retirement age at 60 for both men and women: would reduce pension spending by nearly 2 percentage points of GDP in 2030 and 2050.
  - Increase retirement ages of both men and women to age 63 by 2030: would be enough to keep pension spending in 2030 essentially unchanged from its 2010 level while maintaining a replacement rate of about 40 percent.
    - Without further increases, pension spending would start to increase after 2030—from 9 percent in 2030 to 11½ percent in 2050.
  - Further increase retirement ages to 65 by 2050 (about 1 year per decade in line with projected longevity increases): pension spending in 2050 would be only marginally above its 2010 level.
- Early-retirement tightening:
  - If no individual can claim a pension before age 55 for women and 60 for men, pension spending would decrease by about half a percent of GDP in both 2030 and 2050.
  - Current level of pension spending for people who have not yet reached statutory pension age estimated at 0.7 percent of GDP.

C. Increasing revenues — payroll tax and alternatives
- Example revenue path to offset projected spending increases:
  - Raise payroll tax from current 22 percent of wages to about 30 percent of wages in 2030 and to more than 40 percent in 2050.
  - Such contribution levels exceed observed payroll rates in nearly all advanced and emerging economies (nearly all have pension contribution rates below 30 percent of wages).
  - Contribution hikes risk adverse labor-market effects and promoting informality.
  - Contribution rates were reduced from 26 percent of wages to 22 percent in 2011.
- Alternative revenue options:
  - Using consumption taxes to finance redistributive components such as allowances (allowances currently financed from the Federal budget, not pension contributions).
  - Improving payroll contributions collection efficiency and compliance.

Key quantitative findings and projections (preserved exactly)
- Public pension spending baseline: 9 percent of GDP in 2010; 12 percent in 2030; 16 percent in 2050.
- Replacement rate trajectory to stabilize spending: about 40 percent today → 28 percent in 2030 → 20 percent in 2050.
- Retirement-age equalization to 60 for both sexes: reduces pension spending by nearly 2 percentage points of GDP in 2030 and 2050.
- Raise retirement ages to 63 by 2030: keeps pension spending in 2030 essentially unchanged from 2010 while maintaining a replacement rate of about 40 percent.
- Without further increases, pension spending: 9 percent in 2030 → 11½ percent in 2050.
- Increase payroll tax from 22 percent of wages to about 30 percent in 2030 and to more than 40 percent in 2050.
- Contribution rates reduced from 26 percent of wages to 22 percent in 2011.
- Expected improvements in life expectancy at retirement: about 1 year per decade.
- Estimated current pension spending for people not yet at statutory age: 0.7 percent of GDP.
- Tightening early retirement to 55/60 would decrease pension spending by about half a percent of GDP in both 2030 and 2050.

### Policy recommendations and considerations
- Prioritize gradual increases in retirement ages as a primary reform due to multiple advantages:
  - promotes higher employment levels and economic growth;
  - raises lifetime working periods and earnings, boosting growth of real consumption even in the short run;
  - helps avoid large, socially undesirable cuts in replacement rates;
  - easier for the public to understand given increasing life expectancies.
- Recommended reform path in this paper:
  - Gradually increase statutory retirement ages for men and women to 63 by 2030 and to 65 by 2050 to largely contain public pension spending while maintaining a replacement rate of about 40 percent.
  - Accompany retirement-age increases with protections for those unable to work: adequate disability pensions and social assistance.
  - Limit early retirement by phasing out categorical early-benefit provisions and tightening alternative retirement pathways (e.g., strict medical evaluations for disability pensions).
  - Consider phased measures (tightening indexation, incentives for voluntary delayed retirement) as interim steps if politically necessary.
- Revenue-side measures should be used cautiously due to labor-market distortions; consider alternative financing for redistributive allowances and collection-efficiency improvements.

### Appendix — methodology and data (overview)
- Public pension expenditure identity decomposes pension spending per GDP into old-age dependency ratio, eligibility ratio (pensioners per population 65+), replacement rate (average pension to average earnings), and inverse employment ratio.
- Historical pension spending 1990–2010:
  - 2010 spending for Russia from Rosstat; earlier years imputed based on demographics and ILO data; linear interpolation used when needed.
- Projected pension spending 2010–50:
  - Starting point: latest Rosstat number.
  - Assumptions: constant coverage ratio of pensioners to population aged above 65 years and constant replacement rate; changes driven by employment ratio and old-age dependency ratio.
- Population 1970–2050: UN World Population Prospects: The 2008 Revision.
- Number of workers and economic activity:
  - Workers defined as population aged 15+ that are economically active, computed by 5-year age groups separately by sex for 1970–2050.
  - Economic activity series constructed by combining ILO databases and projected for 2025–2050 using a fixed-effect regression on 5-year cohorts and past cohort activity rates.
- Number of pensioners:
  - All above retirement age considered “retired”; adjustment for early retirement by adding share of 50–60 population active at 45–49 but no longer active.
  - Total retired multiplied by pension coverage (percent of those above statutory age receiving a public pension) from ILO (2010).
- Compensation to GDP: latest observed share from United Nations System of National Accounts 1993 used and assumed constant 1970–2050.
- Replacement rates derived from computed components and pension spending identity.

*Source: Excerpt from IMF working paper chapter "1. What Have Other Countries Done?", IMF staff calculations, tables and figures as cited in the source document.*

### References .............................................................................................................

### _wp12201 - References .............................................................................................................

### Tables
- 1. Key Parameters of the Russian Pension System ....................................................................4
- 2. Pension Spending and Characteristics of the Russian Pension System, 2000–10 .................7

### Figures
- 1. Contribution Rates and Replacement Rates, 2010 .................................................................8
- 2. Demographic Trends, 2012–30 ............................................................................................10
- 3. Public Pension Spending, 2012............................................................................................11
- 4. Projected Public Pension Spending in Russia, 2010–50 ......................................................12
- 5. Impact of Increasing Retirement Ages, 2010–50 ................................................................17

### Boxes
- (No boxes listed in this content unit.)

*https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2012/_wp12201.pdf*

### 1. What Have Other Countries Done? .....................................................................................

### 1. What Have Other Countries Done?

### I. Introduction — context and policy challenge
- Public pension reform in Russia is a key policy challenge.
- To combat the effects of the global financial crisis on the economy in 2009–10, Russia undertook a large fiscal stimulus of about 9 percent of GDP, mainly comprised of permanent measures including an increase in pension benefits.
- The end-2011 nonoil deficit is still more than double the level considered consistent with equitable use of the oil wealth across generations (Gust and Zakharova, 2012) and should be reduced in coming years.
- Durable fiscal consolidation will need to be underpinned by fundamental structural reforms, including in pensions and healthcare.
- An aging population implies reforms will be needed to contain future pension spending.
- Several proposals for pension reform have been put forward, including Strategy 2020 (2011), Dmitriev (2011), and Gurvich (2010). The Ministry of Labor, in cooperation with the Pension Fund of Russia, federal government authorities and the expert community, was expected to present pension reform proposals to the government in October 2012 under the Strategy for Pension System Long-Term Development till 2050.
- This paper presents: projections of pension spending as a share of GDP in the absence of reforms; the impact of some proposals to increase the pension age and reduce early retirement; and alternative proposals.

### II. Russia’s current pension system — structure and parameters
- The current system was introduced in 2002.
- Prior to 2010, the system had three components: a basic pension, an insurance benefit based on a notional defined contribution account, and a funded defined contribution scheme (available only to individuals born after 1967). After 2010, the basic pillar has been folded into the pay-as-you-go portion of pensions.
- The paper focuses mainly on old-age labor pensions; disability and survivor labor pensions are also part of the system.

Key parameters and features:
- Retirement age: 60 for men/55 for women with minimum of 5 years contribution, but many provisions for even earlier retirement.
- Basic pension:
  - 3,170 rubles/month, but higher for those aged 80 or above, disabled persons, those caring for disabled persons or those who spent at least 15 years working in Arctic areas.
  - Indexed to average wages, but can be limited by availability of revenue.
  - As of 2010, the basic pension was about 12 percent of the average wage.
- Notional Defined Contribution (part of PAYG) — labor insurance component:
  - Notional account system, based on actual contributions made, with an assumed 19 years of benefit receipt at the normal retirement age beginning in 2013, phased in from the assumed 12 years in 2002.
  - Indexed to average wages, but can be limited by availability of revenue.
  - Conversion factor: amount in the account is divided by 216 (18 years of benefits) to get the monthly pension and this conversion factor is scheduled to increase to 228 (19 years) by 2013.
- Funded component:
  - Based on individual contributions and interest earned on those contributions.
  - Interest rate on contributions: Interest rate provided by fund chosen by individual.
  - Under the default option, about 85 percent of contributors and assets are currently in the default option (Rudolph and Holtzer, 2010).
  - Default fund real annual return over 2004–2009 was -3.9 percent.
- Contribution rates:
  - Total statutory contribution rate is 22 percent of wages up to an annual cap set at about 165 percent of the average wage (512,000 rubles).
  - Of this contribution, 6 percent of wages is diverted to the funded defined contribution component for younger individuals.
  - 16 percent for those born before 1967, up to 512,000 rubles; 10 percent for those born from 1967 and later up to 512,000 rubles (this 10 percent contribution goes to fund the basic portion).
  - 6 percent for those born in 1967 and later up to 512,000 rubles.
  - Earnings above the annual cap pay a 10 percent tax rate to finance basic pensions.
- State pensions and allowances:
  - State pensions (including early pensions to civil servants and military personnel, disability social pensions, and social pensions for people older than the retirement age who are not entitled to other pensions) and monthly allowances to veterans, the disabled, and persons affected by radiation exposure.
  - PFR funds a benefit top-up to the “subsistence minimum level” (about 20 percent of the average wage, varying by region). Top-ups from PFR and regions together amounted to only 0.3 percent of GDP in 2010.
- Early/Effective retirement:
  - Statutory retirement age is relatively early: men age 60, women age 55.
  - Average effective retirement age is estimated to be in the range of 52–54 for women and 54–58 for men (Dmitriev (2012), Gurvich, and Sonina (2012)).
  - Nearly 30 percent of pensioners retire before the statutory retirement age.
  - The system provides many pathways to early pensions (Arctic region work records; mothers with five or more children or disabled children; unemployed males at ages 58–59 and unemployed females 53–54; men with at least 10 years in hazardous employment and females with at least 7½ years; no minimum retirement age for teachers with 25 years of work with children, health workers with 30 years in urban and 25 years in rural medical institutions, professional ballet dancers, and some other artists).

Spending and coverage statistics (2000–2010, Table 2 highlights):
- Pension Spending (percent of GDP), selected years:
  - Base pension: 2000: 1.9; 2001: 1.8; 2002: 1.6; 2003: 1.4; 2004: 1.6; 2005: 1.4; 2006: 1.8; 2007: 2.2; 2008: 2.7; 2009: (missing value in table); 2010: (table shows elsewhere ~12.2 percent of average wage for base pension replacement).
  - Insurance pension: 2000: 4.0; 2001: 3.9; 2002: 3.5; 2003: 3.6; 2004: 3.0; 2005: 2.9; 2006: 3.0; 2007: 4.1; 2008: 5.2; 2009: (table continues).
  - Allowances: 2000: 0.2; 2001: 0.2; 2002: 0.3; 2003: 0.8; 2004: 0.9; 2005: 0.9; 2006: 0.8; 2007: 1.1; 2008: 1.0.
  - Total, pensions and allowances: 2000: 4.5; 2001: 5.5; 2002: 6.1; 2003: 5.9; 2004: 5.5; 2005: 5.9; 2006: 5.5; 2007: 5.2; 2008: 5.5; 2009: 7.4; 2010: 8.9.
- Replacement rates (in percent of average wage), selected series:
  - Total, pensions and allowances: 2000: 32.3; 2001: 32.9; 2002: 30.8; 2003: 30.2; 2004: 32.2; 2005: 30.5; 2006: 27.5; 2007: 28.6; 2008: 32.9; 2009: 40.2.
- Demographics:
  - Pensioners (million): 2000: 38.4; 2001: 38.6; 2002: 38.4; 2003: 38.2; 2004: 38.2; 2005: 38.3; 2006: 38.3; 2007: 38.5; 2008: 38.6; 2009: 39.1; 2010: 39.7.
  - Percent of pensioners under the retirement age: 2000: 28; 2001: 30; 2002: 30; 2003: 30; 2004: 31; 2005: 31; 2006: 31; 2007: 30; 2008: 29; 2009: 29; 2010: 28.
  - Ratio of population 65+ to population 15-64: 2000: 18; 2001: 18; 2002: 18; 2003: 19; 2004: 19; 2005: 19; 2006: 19; 2007: 18; 2008: 18; 2009: 18; 2010: 18.
- Overall, total spending on pensions and allowances add up to about 9 percent of GDP (around 2010).
- About 30 percent of this spending is devoted to the basic pension, 60 percent to the insurance component and 10 percent to allowances.
- Allowances were expanded in 2005—from under 0.3 percent to about 1 percent of GDP—as part of the monetization of benefits.
- Pensions and allowances increased relative to the average wage from 27½ percent in 2007 to 40 percent in 2010.
- In 2012, the payroll tax rate was reduced from 26 percent of wages to 22 percent. The revenue loss of this reduction is estimated to be 0.5 percent of GDP.

### III. Challenges from aging populations — common issues and demographic drivers
- Key challenges: ensure adequate incomes in retirement, reasonable funding burdens, long-term sustainability, and system flexibility.
- Demographic highlights:
  - Life expectancy at age 60 in Russia is lower than in several other countries—the gap to the best performing country in emerging Europe (Poland) is 3.3 years for females and 2.2 years for males.
  - Life expectancy is projected to rise by nearly 4 years over 2010–2050.
  - Fertility rates over 2005–2010 stood at around 1.4 (children per woman).
  - Fertility rates across Eastern Europe are projected to increase to nearly 1.8 children per woman by mid century, remaining below 2.1 replacement rate.
  - Old-age dependency ratio (population 65+ to working age population) is projected to nearly double from around 18 percent to 36 percent between 2010 and 2050.
- Russia’s level of pension spending (nearly 9 percent of GDP) is similar to emerging Europe and advanced economies, and substantially higher than emerging economies outside Europe.
- Pensions are about 23 percent of general government primary spending in Russia, about the emerging Europe average, compared to 20 percent in advanced economies and 13 percent in emerging economies outside Europe. This could make Russian public finances more vulnerable to demographic pressures.

### IV. Projecting the impact of aging on pension spending — identity and baseline projection
- The paper uses an identity decomposing public pension expenditure as a share of GDP (PE/GDP) into four drivers: aging (old-age dependency ratio); eligibility rates (number of pensioners as proportion of population 65+); replacement rates (average pension to average wages); and labor force participation rates (inverse of employment ratio). The decomposition shows that, ceteris paribus, a doubling in any factor doubles pension spending as a share of GDP.
- Baseline assumptions:
  - Replacement rate remains at its current level; recent increases to about 40 percent of wages are assumed maintained.
- Baseline projection:
  - Pension spending projected to increase from 9 percent of GDP in 2010 to 12 percent in 2030 and 16 percent in 2050 (Figure 4).
  - The present discounted value of increases in pension spending over 2010–50 is about [105] percent of 2010 GDP.
- Comparative perspective:
  - Emerging Europe excluding Russia: average public pension spending projected to remain stable at about 9 percent of GDP until 2030 and increase to only 11 percent of GDP by 2050.
  - Advanced economies: spending projected to increase from 8 percent of GDP in 2010 to 11 percent in 2050.
  - Lower increases elsewhere reflect the impact of enacted reforms.

*Source: Excerpt from IMF working paper chapter "1. What Have Other Countries Done?", IMF staff calculations, tables and figures as cited in the source document.*

### Box 1. What Have Other Countries Done?

### Box 1. What Have Other Countries Done?

### International pension reform experiences
- Reforms in advanced and emerging economies over the past two decades have focused on:
  - Reducing replacement rates through:
    - lowering accrual rates (Greece, Korea);
    - extending the reference period for the base to calculate pensions (Finland, France, Greece, Portugal, Spain);
    - introducing built-in sustainability factors (Germany);
    - automatic changes in the pension formula such as through notional returns (Austria, Italy, Sweden).
  - Tightening eligibility, mainly by increasing statutory retirement ages:
    - retirement ages will increase gradually to 65 years in Italy (including for women), Japan, and Turkey;
    - to 67 years in Germany, Spain, and the United States;
    - to 68 years in Ireland and the United Kingdom;
    - a few countries linked future retirement ages to changes in longevity (Denmark, Italy, Spain);
    - France recently raised retirement ages by two years.
  - Increasing incentives for older individuals to remain in the labor market by:
    - tightening eligibility to early pensions (Greece abolished retirement before age 65 for those with fewer than 40 years of contributions or younger than age 60 in 2011);
    - making later retirement financially more attractive by moving to actuarially fair pension pay outs.
  - Introducing anti-age discrimination legislation (Australia, the European Union, New Zealand, the United States), facilitating older-worker labor-force retention.

### Reforms in emerging Europe
- Early reforms mirrored advanced-economy measures:
  - equalizing male and female retirement ages (Estonia in 1998);
  - reducing benefits (Poland in 1999);
  - raising retirement ages (Hungary in 1992 and Lithuania in 1995);
  - reducing early-retirement benefits (Estonia in 1998).
- Several countries introduced mandatory funded private pensions (Estonia, Hungary, Poland, Romania) with variation in:
  - coverage (cohorts for which schemes became mandatory);
  - speed of transition (share of contributions channeled from the state scheme to private funds).
- Crisis-period fiscal responses included redirecting part of contributions back to the public system (Latvia, Lithuania, Poland).
- Hungary nationalized pension fund assets; mandatory private pensions no longer play a role there.
- Recent parametric reforms include further increases in retirement ages (Hungary), changes to indexation (Romania), and elimination of privileges (Romania).

### Choices and proposals for Russia — major reform dimensions
- Three main reform dimensions for a pay-as-you-go system:
  - Reducing the generosity of the system (replacement rate);
  - Curtailing eligibility (reducing the number of people receiving a pension);
  - Increasing revenues (raising contribution rates).
- Reforms should preserve the system’s role in alleviating elderly poverty, contribute to fiscal consolidation, address equity, and support growth.

### A. Reducing replacement rates — projections and implications
- Baseline projected public pension spending if replacement rates maintained: from 9 percent of GDP in 2010 to 12 percent in 2030 and 16 percent in 2050.
- Possible automatic decline under current law (notional defined contribution component capped at growth rate of contributions per pensioner) could lower replacement rates, but:
  - To keep pension spending at its current level, replacement rates would have to decline from about 40 percent today to 28 percent in 2030 to 20 percent in 2050.
  - Ad-hoc adjustments and social considerations make cuts of this magnitude unlikely and socially undesirable.

### B. Reducing pension eligibility — retirement-age scenarios and fiscal impact
- Increasing statutory retirement ages increases years of contributions and reduces years pensions are paid.
- Health and labor-force participation considerations:
  - More than 70 percent of recipients of early old-age pensions who have not reached the universal retirement age continue to work—majority at the same jobs.
  - Expected improvements in life expectancy at retirement: about 1 year per decade.
- Specific reform scenarios and estimated impacts:
  - Equalize retirement age at 60 for both men and women:
    - would reduce pension spending by nearly 2 percentage points of GDP in 2030 and 2050.
  - Increase retirement ages of both men and women to age 63 by 2030:
    - would be enough to keep pension spending in 2030 essentially unchanged from its 2010 level while maintaining a replacement rate of about 40 percent.
    - without further increases, pension spending would start to increase after 2030—from 9 percent in 2030 to 11½ percent in 2050.
  - Further increase retirement ages to 65 by 2050 (about 1 year per decade in line with projected longevity increases):
    - pension spending in 2050 would be only marginally above its 2010 level.
- Early-retirement tightening:
  - If no individual can claim a pension before age 55 for women and 60 for men, pension spending would decrease by about half a percent of GDP in both 2030 and 2050.
  - Note: average retirement age currently estimated as 52 for women and 54 for men; scenario is a lower bound for benefits of tightening early retirement.
  - Current level of pension spending for people who have not yet reached statutory pension age estimated at 0.7 percent of GDP.
- Complementary measures when raising retirement ages:
  - Provide adequate disability pensions and social assistance for those unable to work longer;
  - Tighten eligibility criteria for disability and survivors pensions as retirement age increases;
  - Reduce benefits claimed prior to retirement age to reflect longer receipt period.

### C. Increasing revenues — payroll tax and alternatives
- Offset projected spending increases by raising system revenues:
  - Example: raise payroll tax rate from current 22 percent of wages to about 30 percent of wages in 2030 and to more than 40 percent in 2050.
  - Such contribution levels exceed observed payroll rates in nearly all advanced and emerging economies (nearly all have pension contribution rates below 30 percent of wages).
  - Large contribution hikes risk adverse labor-market effects and promoting informality.
  - These increases would contradict recent Russian efforts to reduce labor cost; contribution rates were reduced from 26 percent of wages to 22 percent in 2011.
- Alternative revenue options include:
  - Using consumption taxes to finance redistributive components such as allowances (allowances currently financed from the Federal budget, not pension contributions).
  - Improving payroll contributions collection efficiency and compliance.

### Key quantitative findings and projections (preserved exactly)
- Public pension spending baseline: 9 percent of GDP in 2010; 12 percent in 2030; 16 percent in 2050.
- Replacement rate trajectory to stabilize spending: about 40 percent today → 28 percent in 2030 → 20 percent in 2050.
- Retirement-age equalization to 60 for both sexes: reduces pension spending by nearly 2 percentage points of GDP in 2030 and 2050.
- Raise retirement ages to 63 by 2030: keeps pension spending in 2030 essentially unchanged from 2010 while maintaining a replacement rate of about 40 percent.
- Without further increases, pension spending: 9 percent in 2030 → 11½ percent in 2050.
- Increase payroll tax from 22 percent of wages to about 30 percent in 2030 and to more than 40 percent in 2050.
- Contribution rates reduced from 26 percent of wages to 22 percent in 2011.
- Expected improvements in life expectancy at retirement: about 1 year per decade.
- Estimated current pension spending for people not yet at statutory age: 0.7 percent of GDP.
- Tightening early retirement to 55/60 would decrease pension spending by about half a percent of GDP in both 2030 and 2050.

### Policy recommendations and considerations
- Prioritize gradual increases in retirement ages as a primary reform due to multiple advantages:
  - promotes higher employment levels and economic growth;
  - raises lifetime working periods and earnings, boosting growth of real consumption even in the short run;
  - helps avoid large, socially undesirable cuts in replacement rates;
  - easier for the public to understand given increasing life expectancies.
- Recommended reform path for Russia in this paper:
  - Gradually increase statutory retirement ages for men and women to 63 by 2030 and to 65 by 2050 to largely contain public pension spending while maintaining a replacement rate of about 40 percent.
  - Accompany retirement-age increases with protections for those unable to work: adequate disability pensions and social assistance.
  - Limit early retirement by phasing out categorical early-benefit provisions and tightening alternative retirement pathways (e.g., strict medical evaluations for disability pensions).
  - Consider phased measures (tightening indexation, incentives for voluntary delayed retirement) as interim steps if politically necessary.
- Revenue-side measures should be used cautiously due to labor-market distortions; consider alternative financing for redistributive allowances and collection-efficiency improvements.

### Appendix — methodology and data (overview)
- Public pension expenditure identity decomposes pension spending per GDP into demographic and program parameters: old-age dependency ratio, eligibility ratio (pensioners per population 65+), replacement rate (average pension to average earnings), and inverse employment ratio.
- Historical pension spending 1990–2010:
  - 2010 spending for Russia from Rosstat; earlier years imputed based on demographics and ILO data; linear interpolation used when needed.
- Projected pension spending 2010–50:
  - Starting point: latest Rosstat number.
  - Assumptions: constant coverage ratio of pensioners to population aged above 65 years and constant replacement rate; changes driven by employment ratio and old-age dependency ratio.
- Population 1970–2050: UN World Population Prospects: The 2008 Revision.
- Number of workers and economic activity:
  - Workers defined as population aged 15+ that are economically active, computed by 5-year age groups separately by sex for 1970–2050.
  - Economic activity series constructed by combining ILO databases and projected for 2025–2050 using a fixed-effect regression on 5-year cohorts and past cohort activity rates.
- Number of pensioners:
  - All above retirement age considered “retired”; adjustment for early retirement by adding share of 50–60 population active at 45–49 but no longer active.
  - Total retired multiplied by pension coverage (percent of those above statutory age receiving a public pension) from ILO (2010).
- Compensation to GDP: latest observed share from United Nations System of National Accounts 1993 used and assumed constant 1970–2050.
- Replacement rates derived from computed components and pension spending identity.

*Source: IMF 2011b (as presented in the text of Box 1).*

### REFERENCES

### REFERENCES

### Pension reform assessments and analyses
- Barrand, Peter, Stanford Ross, and Graham Harrison, 2004, “Integrating a Unified Revenue Administration for Tax and Social Contribution Collections: Experiences of Central and Eastern European Countries,” IMF Working Paper WP/04/237. Available via the internet at: http://www.imf.org/external/pubs/ft/wp/2004/wp04237.pdf.
- Dmitriev, Mikhail, ed., 2011, “Proposals for the Development of the Pension System in the Russian Federation,” Expert Council of Russian Federation Presidential Public Council for the Investment of Pension Accumulation Assets, April 2011.
- Dmitriev, Mikhail, 2012, “Are Pension Systems in BRICS Sustainable? Russia in Depth,” Presentation at IBRD/IFC 5th Contractual Savings Conference, January 2012.
- Fornero, Elsa and Ferraresi, Pier Marco, 2007, “Russia – Pension reform and the development of pension systems: an evaluation of World Bank assistance,” Independent Evaluation Group, World Bank, Washington, DC. Available via the Internet at: http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2007/03/21/000020439_20070321162105/Rendered/PDF/391370RU0pensions01PUBLIC1.pdf.
- Gore, Mare, Okeksandr Rohozynsky, and Oxana Sinyavskaya, 2010, “Pension Reform Options for Russia and Ukraine: A Critical Analysis of Available Options and Their Expected Outcomes,” ESCIRRU Working Paper No. 25. Available via the Internet at: http://www.diw.de/documents/publikationen/73/diw_01.c.353450.de/diw_escirru0025.pdf.
- Hauner, David, 2008, “Macroeconomic Effects of Pension Reform in Russia,” IMF WP 08/201. Available via the Internet at: http://www.imf.org/external/pubs/ft/wp/2008/wp08201.pdf.
- Heinz, P. Rudolph and Peter Holtzer, 2010, “Challenges of the Mandatory Funded Pension System in the Russian Federation,” Policy Research Working Paper 5514, World Bank. Available via the Internet at: http://siteresources.worldbank.org/FINANCIALSECTOR/Resources/WPS5514.pdf.
- Mansoora, Rashid, Larry Thompson, Hermann von Gerodoff, and Elena Zoltova, 2002, “Pension Reform in Russia: Design and Implementation, World Bank Report No. 29017. Available via the Internet at: http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2004/09/16/000160016_20040916164223/Rendered/PDF/290170Russian0RU0Pension0reform.pdf.
- Ministry of Health and Social Development of the Russian Federation, 2010, “Results of Pension Reform and the Long Term Outlook for Development of the Pension System of the Russian Federation Accounting for the Influence of the Global Financial Crisis,” October 2010. Available via the Internet at (in Russian): http://www.minzdravsoc.ru/docs/mzsr/insurance/6.
- Nazarov, Vladimir, 2010, “Topical Issues of Pension Reform,” Russian Academy of National Economy and the Public Service under the President of the Russian Federation. Available via the Internet at: http://www.ane.ru/files/docs/expert_sovet/2010/nazarov.pdf.
- Sinyavskaya, Oxana, 2005, “Pension Reform in Russia: A Challenge of Low Pension Age,” Discussion Paper 267, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University. Available via the Internet at: http://cis.ier.hit-u.ac.jp/English/publication/cis/dp2004/dp267/text.pdf

### Macroeconomic effects and fiscal framework
- Karam, Philippe D., Dirk Muir, Joana Pereira, and Anita Tuladhar, 2010, “Macroeconomic Effects of Public Pension Reforms,” IMF Working Paper No. 10/297.
- Hauner, David, 2008, “Macroeconomic Effects of Pension Reform in Russia,” IMF WP 08/201. Available via the Internet at: http://www.imf.org/external/pubs/ft/wp/2008/wp08201.pdf.
- Gust, Charleen and Daria Zakharova, 2012, “Strengthening Russia’s Fiscal Framework,” IMF WP 12/76.
- Karam, Philippe D., Dirk Muir, Joana Pereira, and Anita Tuladhar, 2010, “Macroeconomic Effects of Public Pension Reforms,” IMF Working Paper No. 10/297.

### Analytical articles and commentaries
- Gurvich, Evsey, 2010, “The Reform of 2010: Have the Long-Range Problems of the Pension System Been Solved?” Zhurnal Novoy ekonomicheskoy assotsiatsii, No. 6.
- Gurvich, Evsey, 2011, “New Pension Reform Principles,” Voprosy Economikii, No. 4.
- Gurvich, Evsey, and Yu. Sonina, 2012, “Microanalysis of the Russian Pension System,” Voprosy Ekonomiki, No. 2.
- Kolev, Alexandre, and Anne Pascal, 2002, “What Keeps Pensioners at Work in Russia: Evidence from Household Panel Data,” Journal of Economics of Transitions, 10 (1). Available via the Internet at: http://onlinelibrary.wiley.com/doi/10.1111/1468-0351.00102/pdf.
- Putin, Vladimir, 2012, “Building justice: A social policy for Russia,” Komsomolskaya Pravda. Available via the Internet at: http://premier.gov.ru/eng/events/news/18071/.

### IMF, World Bank, and policy papers
- International Monetary Fund, 2011a, “Russian Federation: 2011 Article IV Consultation—Staff Report,” IMF Country Report No. 11/294. Available via the Internet at: http://www.imf.org/external/pubs/ft/scr/2011/cr11294.pdf.
- International Monetary Fund, 2011b, “The Challenge of Public Pension Reform in Advanced and Emerging Economies,” IMF Policy Paper. Available via the Internet at: http://www.imf.org/external/np/pp/eng/2011/122811.pdf.
- Fornero, Elsa and Ferraresi, Pier Marco, 2007, “Russia – Pension reform and the development of pension systems: an evaluation of World Bank assistance,” Independent Evaluation Group, World Bank, Washington, DC. Available via the Internet at: http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2007/03/21/000020439_20070321162105/Rendered/PDF/391370RU0pensions01PUBLIC1.pdf.
- Heinz, P. Rudolph and Peter Holtzer, 2010, “Challenges of the Mandatory Funded Pension System in the Russian Federation,” Policy Research Working Paper 5514, World Bank. Available via the Internet at: http://siteresources.worldbank.org/FINANCIALSECTOR/Resources/WPS5514.pdf.
- Mansoora, Rashid, Larry Thompson, Hermann von Gerodoff, and Elena Zoltova, 2002, “Pension Reform in Russia: Design and Implementation, World Bank Report No. 29017. Available via the Internet at: http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2004/09/16/000160016_20040916164223/Rendered/PDF/290170Russian0RU0Pension0reform.pdf.

### Strategy and national reports
- Strategy 2020 (2011), “Interim Report on the Results of the Expert Assessment of Topical Issues of Russia’s Socio-Economic Strategy for the Period Until the Year 2020—Strategy 2020: New Growth Model, New Social Policy”.
- Ministry of Health and Social Development of the Russian Federation, 2010, “Results of Pension Reform and the Long Term Outlook for Development of the Pension System of the Russian Federation Accounting for the Influence of the Global Financial Crisis,” October 2010. Available via the Internet at (in Russian): http://www.minzdravsoc.ru/docs/mzsr/insurance/6.

*Source: _wp12201 - REFERENCES*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2012/_wp12201.pdf_