Russian Social Sector Reform

1. Russian Social Sector Reform By: Scott Wesseler by Scott Wesseler

2. Break down of the Russian Social Sector • Russia, by its constitution, is a social welfare state • There are many divisions within the Russian social sector: • Divisions based upon government level • Divisions based around type of service provided

3. Rough Breakdown of Russian Social Welfare System

4. 1997 Russian Expenditures:

5. 2003 Russian Expenditures

6. Extrabudgetary Fund Operations: 1997-2003

7. Old-age Pensions Old-age labor pensions State service pensions State social pensions Early old age pensions Disability Pensions: Disability Labor Pensions State Disability Pensions Survivor Pensions Survivor Labor Pensions Social Survivor Pensions The Russian Pension system operates on the PAYGO principle. Pensions: an Overview

8. Disability Pensions: Qualifying Conditions • Disability Labor Pensions: • For those who were previously employed • Three groups • 1: 100% incapable of work and requiring constant attendance • 2: 100% incapable of work but not requiring constant attendance • 3: 50% incapable of work but not in need of constant attendance • State disability pension: • Previously employed • Persons under age 20 disabled due to a general illness or a severe work injury, occupational disease or military service

9. Survivor Pensions: Qualifying Conditions • Survivor Labor Pensions: • Length of service and insurance coverage not considered • Widows over 55 and widowers over 60, or those who are unemployed and caring for children less than 14; children up to 18 (23 for students), brothers and sisters up to 18, and grandfathers over 60 and grandmothers over 55 • Social survivor pension: • Provided if the deceased did not have insurance coverage

10. Pensions: Old-age Qualifying Conditions: • Old-age Labor Pensions • Available to men at age 60 and women at age 55 • State Service Pension • A supplement to the old-age labor pension to state employees, military personnel, and policemen and women with 15 years of service • State social pension • Disabled citizens, or those meeting age requirement (men - 65, women – 60) • Early old-age pension: • Age 50 with 10yrs of work for men and age 45 with 7.5 years of work for women in an unhealthy working environment or a physically demanding natural environment

11. Social Welfare Indicators after the Collapse • Wide spread poverty exists, this was especially true in the years directly after collapse • This poverty was exasperated by inflation • Hit certain groups harder than others

13. Social Structure of Poverty in Russia in 2000 (%)

14. Social Welfare Indicators after the Collapse • Unemployment rose consistently until the year 2000 where it reached its pinnacle at around 13%, it has since fell • The reproduction rate has steadily fallen

15. Reduction of Base:Wage Arrears • Were fairly common • Have an effect on the social welfare system because they take resources that otherwise would be used by the government to implement its policy priorities

16. Reduction of Base: Decline in Industrial Output and GDP • Enterprises found it increasingly hard to pay the 29% payroll tax • A way around this was tax evasion, they just paid workers informally • Another way around this was to stall on the payments, • Occurred to the extent that by 1997 about ¾ of enterprises did not pay on time. • Together they owed over R87 trillion, which was about half of the total amount that was supposed to be in the fund.

17. Result of Reduction in Base: • Available funds were not able to meet the growing needs for welfare aid. • Arrears in the Pension Fund became widespread and severe starting in 1994 and grew in % of budget from 10% of annual expenditures in 1994 to 17% in 1998. • Pensions also underwent a severe decline in real value • By 1999 the real value of pensions stood at about 60% of their 1991 level.

18. Regional Disparities • Regional disparities are still a major problem. • Over 70% of regional budgets are subsidized. • More than half of regional budgets are bankrupt without any hope for remedying their situations in the foreseeable future. • The extent and quality of social welfare services each region is capable of providing varies greatly.

19. Reforms to the system: • In 2003 the Russians changed their Pension system to no longer operate solely off of the PAYGO principle. • Now it is a mixed system with 3 parts: the basic pension (which is minimal but guaranteed), the insurance pension and the funded pensions. • The insurance pension will be paid by the PAYGO principle. • The funded pensions are basically personal accounts to which an increasing percentage of an individual’s pension savings would be contributed.

20. Reforms to system: • Other reforms were attempted outside of the Extrabudgetary realm to attempt to approve social welfare • Many of these reforms tried to tackle inefficient allocation of aid and also public cynicism about social welfare in general. • These have not yet been successful

21. Projections for the Future: • Those about to reach retirement age will lose from this system • Those who have awhile before their retirement will gain. • Women will not gain as much as men because: -they have lower social security contributions -less employment length and longer periods of retirement.