The Russian Government is taking good care of its retirees. Prime Minister Dmitry Medvedev was brutally honest with pensioners in Crimea last May: “There is no money, but cheer up!” he said to an angry elderly woman asking that her pension be indexed to inflation (as the authorities had vowed to do after annexation). Clearly unable to make good on their promises, the authorities instead decided to make a one-time payment next year.
In another memorable statement, Medvedev explained the government’s reasoning:
Under current economic conditions, a one-time payment would be better; one can buy something for a holiday celebration, do something else with it, rather than have it be spread thinly and not be felt at all.
Russian pensioners will be able to live large in January of 2017, when every retiree, employed and unemployed, receives 5,000 rubles ($80), rather than having it be spread out all year, amounting to $6.06 per month.
The Central Bank of Russia says that the one-time payment will take 220 billion rubles ($3.4 billion) from the federal budget, and will lead to a moderate acceleration of inflation in 2017. The numbers, however, depend on where the Government takes the money from. If the authorities shift around line items in the budget but don’t increase spending, inflation will increase only 0.15% in the first quarter. But if the government increases spending, higher inflation is sure to follow.
The good news for Russian pensioners, however, was tempered with some bad news for current workers. The Russian Government announced it would again freeze saving contributions to the pension funds in 2017, the fourth time the Government has done so since Crimea’s annexation. (The pension system in Russia consist of two parts: insurance and savings. The insurance part is used by the government to pay current pensions, while the savings part stays in every citizen’s account and may be invested. Each employer is required to set aside 22 percent of each employee’s salary for pensions, with 16 percent going to insurance, and 6 percent to savings. If a person doesn’t chose a private pension fund to invest his retirement savings, those funds automatically go to the State Pension Fund of Russia. The saving contributions freeze means all the 22 percent go to the insurance part—people are directly being deprived of their retirement savings.)
This blatant expropriation of people’s savings was largely met by mute silence by Russians. Only the former Finance Minister (and now Deputy of the Economic Presidential Council) Alexey Kudrin called the freezing decision a sad one. “Such a pity,” Kudrin tweeted.