Russian Social Sector Reform
By: Scott Wesseler
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
Rough Breakdown of Russian Social
Welfare System
1997 Russian Expenditures:
Rest of Federal
Federal Health
3%
20%
9%
5%
37%
Fed. Social
Policy
1%
23%
2%
Rest of Regional
Regional Health
Regional
Housing
Regional Social
Security
Extrabudgetary
2003 Russian Expenditures
Rest of Federal
Federal Health
22%
35%
Fed. Social Policy
4%
Rest of Regional
1%
5%
Regional Health
5%
25%
3%
Regional Housing
Reg. Social Security
Extrabudgetary
Extrabudgetary Fund Operations:
1997-2003
900
800
700
Employment Fund
600
Pension Fund
500
Social Insurance
Fund
Medical Insurance
Fund
400
300
200
100
0
1997 1998 1999 2000 2001 2002 2003
Pensions: an Overview
• 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.
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
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
•
•
•
•
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
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
% of Russians Living Below the
Poverty Level
100
80
60
40
20
0
1991
1992
1994
2003
Social Structure of Poverty in
Russia in 2000 (%)
Pensioners
7%
Doctors and hospital
personnel
Teachers
29%
21%
Students
12%
12%
5%
14%
Children
Other State
Employees
Other
Social Welfare Indicators after the Collapse
% Unemployment
14
12
10
8
6
4
2
2002
2000
1998
1996
1994
1992
0
1990
• 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
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
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.
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.
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.
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.
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
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.