Russia to return to inflation indexed pensions in 2017

By bne IntelliNews January 3, 2017

Indexation of Russian pensions in 2017 will return to the old order of being indexed with inflation. In 2016, indexation was cut to 4% – well behind the 7–10% rate of inflation prevalent for most of the year – in an effort to reduce the budget deficit. The government also said that the index for the subsistence level will this year be adjusted upwards.

Pension payments will grow by about 5.8% from February and the average annual amount of insurance for old age pensions based on a fixed payment in 2017 will amount to RUB13,657 ($224). Social and state pensions will increase by 2.6% to an average size of RUB8,803 from April 1. The average size of the social pension for disabled children and the disabled since childhood group will be RUB13,349.

The indexation has been made easier to re-impose by the success of the Central Bank of Russia (CBR) in bringing down the rate of inflation, which last year fell below 6% for the first time since the fall of the Soviet Union, reaching 5.4% as of the end of 2016.

The pension issue is pressing as the demographic dip caused by the chaos of the 1990s has started to kick in, decreasing the size of the working population and relatively increasing the number of pensioners they have to support. The government predicts growth in the number of pensioners on its lists will increase from 43.3mn in 2016 to 43.9mn people by the end of 2017, which translates into 4mn more people who will qualify for a state pension.

The obligatory pension insurance contribution rates will remain the same at 22% of income in 2017, but the function of administration of insurance premiums will be transferred from the Pension Fund to the Federal Tax Service. The Pension Fund will keep a number of functions during a three-year transition period. Also, the state pension fund will continue to administer voluntary contributions from the insurance and funded pension.

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