mead cohen berger shevtsova garfinkle michta grygiel blankenhorn
pension peril
Russia Takes Away Workers' Piggy Banks

Pension problems are hardly unique to the U.S. Russia’s system, for example, looks worse than unsteady. The government there has decided, for the second consecutive year, to spend the money that was supposed to go toward investments for future pension payments on current payments instead. Russia Beyond the Headlines reports:

Contributions for 2013, amounting to some 550 billion rubles ($15.2 billion), have already been frozen, with the government intending to do the same with a further 700 billion rubles’ worth of pension savings for 2014.

The move, which the Ministry of Labor and Social Protection says is necessary in order to finance current pension payments, will leave major Russian companies without investment and will force banks to raise interest rates.

The system, as originally conceived, was supposed to encourage employees to save for retirement. Out of the 22 percent taken out of their paychecks for pensions, workers were supposed to be able to put 6 percent into private investments (leaving the other 18 percent for present-day pension payments). But this year, like last year, all 22 percent of employees’ contributions will go directly to pay off the fund’s current obligations.

So much for encouraging fiscal responsibility. Funds are falling short because the workforce is aging, but skimping on investments now will make things even worse down the line, when Russia’s population is even older. Russia is showing us why propping up a financially unsustainable present by depriving the future of investment returns isn’t a good idea—which makes us wonder why some U.S. states seem to want to follow a similar path.

Features Icon
show comments
  • Corlyss

    Rather typical of lefty tyrannies, ain’t it?

  • hooharhar

    Uh oh, prolly another glass house to throw stones at…

  • Bruce

    Did the Ruskies learn to manage a pension fund from us or did we learn from them? We both do it the same way.

    • free_agent

      Ugh, at least in the US we can bail the system out by admitting immigrants. Russia doesn’t have any unpleasant ways to save the system that they can fall back on.

      • Alexey Strelkov

        In fact, Russia has the second-biggest population of immigrants in the world.
        Obviously, it is not helping, so attracting immigrants alone cannot solve problems with pension funds.
        Since the problem itself is complex (aging population, less children, extensive social programs, high consumer expectations) I doubt it will really be solved any time soon.

        • free_agent

          According to the CIA World Factbook, Russia has 1.69 net immigrants/1000 population/year, which is high for a large country. The US’s rate is 2.45, which helps our pension system a bit. But if things got really ugly, the US could put its rate up to 10 or even 20 by simply letting more people in, and that would dramatically shore up the pension system. I doubt Russia can attract that many people.

          • Alexey Strelkov

            I pray that Russia WON’T attract even half of that number. Don’t forget that uncontrolled immigration solves (it is debatable if it really “solves” instead of “masks”) pension problems only in short term. No migrant wants to work for minimum wage forever and when those migrants retire, they will expect an American pension (European/Russian/etc. Of course, by that time they will be American/Russian/European themselves). So it will just continue a vicious cycle of not enough pension money – bring more immigrants – not enough pension money.
            And don’t forget that the US is not a young immigrant nation anymore. Even younger and more open nations like Australia are starting to experience problems with racism and xenophobia (which is ironic since no nation on Earth is more “immigrant” than Australia). And, of course, sudden influx of immigrants invariably creates tensions.

          • free_agent

            Of course, if you have to increase immigration to bail out the pension system, you must simultaneously revise the pension benefits (payable several decades out) to make it actuarially sound. But if you do it right, you don’t take promised money away from anyone who is currently in the country, so the political resistance is less.

© The American Interest LLC 2005-2016 About Us Masthead Submissions Advertise Customer Service