“I do not like any of the options for raising the retirement age,” commented Vladimir Putin, breaking his conspicuous silence on pension reform. “I assure you,” he told volunteers at an event in Kaliningrad on July 20, “in the government there are few who do.” While Russia has made news in the West of late with its malicious acts in cyberspace and machinations in the Middle East, the singular domestic issue of the day is pension reform. The issue has fomented mass protests in Russia—an outpouring of anger which is the largest Putin has faced over an economic issue since taking power.
So why have Russian authorities embarked on pension reform now, what does it entail, and what does it mean for domestic politics? No, Putin is not about to be toppled. But pension reform is a critical issue for Russia, and one that may have meaning closer to home than meets the eye.
Pensioners and Policies
There are currently 46.5 million pensioners in Russia, roughly a third of the country’s population. Annual expenditures on pensions this year are set to total 7.35 billion rubles ($120 billion) compared to 16.5 trillion in budget spending. Suffice it to say, this is a large and expensive system. The key problem is a demographic one: Russia’s working-age population, the tax base for the pension system, is decreasing as a proportion of the overall population. In 2010 working-age Russians made up 62 percent of the population. This year the figure is only 58 percent, and that number will only shrink over the next decade. This is not a case of Russia the “dying bear,” as a familiar trope goes; the trend is occurring across Europe as a whole. But it nonetheless poses a particular problem for Putin.
When the Pension Fund of Russia (PFR) operates at a deficit, as it has in recent years, the federal government must transfer funds out of the budget to close the gap. That reduces the fiscal space available for key items such as Putin’s bold spending plans for his current term. It is also a political legitimacy problem: Part of the social contract in Putin’s Russia, at the very least until the economic crisis, was the exchange of political freedoms for prosperity.
There are two components of the pension reform, one of which has received significantly more news play than the other. First is a gradual hike in the retirement age: from 60 to 65 for men and from 55 to 63 for women. It bears note that the current retirement age was stipulated in 1932 and by modern standards is very generous, despite the actual pension benefits being fairly meagre.
Second is a change to the mandatory savings component of Russia’s pension system—roughly equivalent to a 401(k). Under the most recent edits to Russia’s pension code, workers could elect to divert up to 6 percent of the 22 percent payroll tax they face into individual savings accounts, the sort of “nest egg” concept that has been floated in the United States on occasion. The issue with this system was that these accounts were technically property of the state, and contributions to them were “frozen” starting in 2013: The government used these contributions to cover present pension needs instead. Under the new system, with a roadmap expected in the coming weeks, workers will contribute the whole 22 percent payroll tax to present pension needs and be able to save an additional 6 percent—likely on an opt-out basis, to the alarm of some. It is an unofficial mantra for local economy officials that if a policy can’t be made to work on a market basis, rigid laws often do the trick.
A Look at the Numbers
A slew of public polling since pension reform was announced—particularly following the closing of the World Cup—shows warning signs for the Kremlin. According to the independent Levada Center, approval of the Duma sits at 33 percent, approval of the government sits at 37 percent, and approval of Prime Minister Medvedev is at 31 percent. Putin’s approval rating is at 67 percent, low by his standards. Measures of protest potential—a gauge of how liable Russians are to take to the street—should worry the Kremlin as well. Pollster VTsIOM’s protest index is presently at 43, the highest it has been since 2005 (more on that year shortly). Its accompanying measure of personal protest potential recently reached 36, a high since the mass protests that rocked Russia in 2011 and 2012. Another measure by Levada finds 41 percent of Russians believe protests over economic issues are “entirely possible” while 28 percent would personally take part: the highest level these figures have reached since Russia defaulted on its debt in 1998. It can be said that the current reform project has firmly put to rest the Crimean consensus, the massive boost in popularity enjoyed by officials after the annexation of Crimea. We’re back to 2013.
This current reform episode most closely mirrors another, earlier social security push by Putin and his economic team. In 2004 and 2005, they moved to monetize benefits for a number of protected classes. In simpler terms, the aim was to convert non-tangible benefits (cheaper bus tickets, for instance) into direct payouts for veterans, the emergency responders at Chernobyl, and others. The idea was ultimately to save money on administrative costs while also reducing corruption (and allowing the reform and privatization of other utilities). Recipients of these benefits felt aggrieved, and that the new payouts would be of less value than the benefits they had enjoyed. The ensuing protests, largely by elderly Russians, were the largest Putin had faced to date. Then too, his approval figures shrunk, but only temporarily.
Why the Anger? Political Implications
The difference between this protest episode and others is that pension reform is an issue that touches everybody. Protests by independent long-haul truckers in recent years over per-kilometer tolls drew attention, but they represent only a tiny fraction of Russians, who were necessarily spread—and moving—around the country at all times. Election falsification in 2011 angered a then-burgeoning urban middle class, predominantly in Saint Petersburg and Moscow, but anger failed to take root more broadly. In contrast, every Russian expects a pension. For older Russians, steeped in the values of Soviet times, the reform push represents an abdication by the state of something it ought to provide. Said one commentator, the reform push is a “neoliberal coming out” by the authorities. Meanwhile, younger Russians fear paying for benefits they themselves will never receive.
What’s more, all of this follows years of economic stagnation. Though Russia’s economy has begun to recover from a recent low, the benefits of this recovery have been uneven at best. Certain sectors and regions are doing considerably better than others, and consumers, who took the brunt of the crisis in higher prices, have struggled to find their footing: Real wages have continue to flounder and households are increasingly turning to borrowing to maintain their lifestyle. Cuts to benefits enjoyed for several generations are coming at a difficult period for many. Moreover, unlike prior hardships, a pension reform push can’t be pinned on a malicious West seeking to surround Russia. The considerations here are entirely domestic, and the optics are entirely poor. That was no secret to many officials, Putin included, who refused for years to even talk about the possibility of such a policy adjustment.
Despite the anger being directed towards the Kremlin, it is difficult to see how the current protests could spell serious trouble for Putin. For one, they are likely to die down with time, due to the difficulties of persistent mobilization and upcoming August holidays. Second, despite some chants calling for Putin to resign, most anger has been directed towards the policy itself or lower-ranking officials (TV stations and “opposition” politicians have dutifully followed instructions not to mention Putin or Medvedev by name). “Putin, save us from this policy” is just as common a slogan as “Putin is a thief!” Thirdly, Putin has political capital to spend after his recent electoral win. Though his popularity has suffered a blow (for now), Putin remains the most popular politician in a country with no visible alternative. Still, the protests are large, and it is dubious that the current delineation between economic and political grievances can remain clear forever. The buck ultimately stops with the Kremlin.
There and Here
The struggles of an autocrat to keep his people happy while balancing economic realities may seem foreign. So too do angry pensioners turning out to protest the erosion of socialist values in a capitalist modern Russia.
But these concerns may not be as far away as they first appear. The United States, too, is a country with an increasingly large elderly cohort. Though demographic trends in the two countries are for different reasons—America had a baby boom in the 1950s, Russia had a baby bust in the 1990s—the net result is much the same. And like Putin now, though with much more democratic accountability, American politicians will have to make a number of difficult, highly unpopular policy decisions in the years to come. Meanwhile, Russia is contending with the political impact of an economy that has not recovered evenly, particularly in industrial towns and outside major cities.
Russia’s pension issues, in other words, ought to ring a bell. Though the headache is Putin’s today—and tempting as it may be to derive some schadenfreude from his travails—the problem of pension reform will be at our doorstep soon enough.