How many pensions one person can have, who pays them and what this money can buy – find out what elderly Russians live on.
What is a ‘pension’ in Russia?
A pension is a monthly payment from the state or private pension funds paid to a person from the moment they reach the official retirement age and until they die. Under the law, this does not mean (and this is slightly confusing) that a person who has reached the retirement age cannot continue working or must retire. A person can become a pensioner even if they continue working. They are then paid both a pension and a salary. In other words, a pension is the money that a person can count on irrespective of whether they have any earned income or not.
There are several types of pensions and which pension a specific person will get depends on many factors: their place of work, length of service, disability, military injuries, state awards, etc. But, the most common type of pension in Russia is the “old-age” pension, which is paid by the state and which is called ‘insurance pension’ (because it is based on insurance principles).
What is the retirement age in Russia?
Since 2019, this age has been gradually increasing by six months every year, due to a recent pension reform. These increases will continue until 2028, so that, in the end, the retirement age will be set at 60 for women and 65 for men (prior to the reform, it was five years less for both, i.e. women could retire at 55, while men at 60).
Some categories of citizens (there are about 30 of them) can retire earlier. This option is available, for example, to women who have three or more children, to those who are employed in hazardous industries or work in the difficult conditions of the Far North, to people with disabilities and others.
However, in order to get a pension, it is not enough just to reach a certain age.
What is a pension based on?
In order to receive an insurance pension, it is necessary to accumulate at least a minimum length of service and so-called pension points (conventional units awarded for each year a person has worked; they depend on the amount of insurance contributions made by the employer). The longer the service and the more points a person has accumulated, the higher their pension will be.
Some pensioners are also entitled to additional payments. Among them, for example, are those who are aged 80 and over, pensioners who used to work in rural areas and in the Far North or pensioners with dependents. Sometimes, the additional payments are largely symbolic, but, sometimes, they are quite significant.
In 2022, the average “old-age” pension in Russia is 18,500 rubles (approx. $244).
The highest pensions are paid to those employed in dangerous professions, to arts and culture figures who have been awarded the title of ‘People’s Artist’, to members of parliament, to judges and cosmonauts. For example, a judge’s pension varies from 35,000 to 200,000 rubles (approx. $460 – $2,640), a State Duma deputy’s pension is over 46,000 rubles (approx. $600) and a cosmonaut’s is, on average, 446,000 rubles (approx. $5,900).
What happens if length of service and pension points are below the required minimum?
If a person’s length of service and pension points are below the required minimum, the person can continue working, until they reach the requirement minimum (as of 2022, that is set at 13 years of work and 23.4 points). That said, if a person works unofficially or does not have a job, they will still receive an “old-age” pension. Except that it will no longer be an insurance pension, but a social one (the lowest possible) and the retirement age will automatically be extended by five years.
The social pension in Russia is currently 6,242 rubles (approx. $82), which is below the subsistence level that varies from region to region. That is why pensioners are compensated the difference between the subsistence level and their social pension. Thus, in Moscow, the social pension in 2022 is 21,193 rubles (approx. $280), whereas, for example, in Barnaul it is 10,882 rubles (approx. $143) and in Vladivostok, 12,119 rubles (approx. $160).
Is it possible to survive on a pension?
In 2019, the Russian Audit Chamber calculated that, in order to survive on a pension, a pensioner in Russia has to live on not more than 200 rubles (approx. $2.60) a day. According to the Audit Chamber, this is the amount pensioners will have left for groceries after paying their utility bills and buying medicines. Spending on clothes and footwear not envisaged at all.
It is therefore not surprising that some people start thinking about what they will live on in their old age long before retirement and invest in private pension funds. These are controlled by large corporations, banks or insurance companies and this form of pension is called voluntary pension insurance. It does not replace the guaranteed pension from the state, but is an additional option.
This is, in fact, a supplementary pension, formed on the terms chosen by the future pensioner, with an investment program suitable for them. Having concluded an agreement, you make an initial contribution to your account and then replenish the account according to a set schedule. The private pension fund will invest your money in low-risk stocks, bonds and precious metals to generate income. The scheme works as follows: first you make contributions, then you retire and the fund pays you back the accumulated money in monthly installments.
“By the time the pension is paid, the amount in my account will be higher than the amount of my contributions,” says Oleg Tikhomirov, who has an account with a non-state pension fund. “If I want to withdraw the money at the accumulation stage, the fund can levy a fine: I will receive less than I deposited. If I don’t live to see my pension, there will be no fine: my heirs will receive the accumulated amount in full.”
However, the share of those who use this option to save up for a second pension is low. This option has its drawbacks and does not enjoy much trust among Russians. For example, in the long term, its profitability is dented by high inflation; a person cannot move from one fund to another more than once every five years, otherwise they will lose their income. Besides, a future pensioner cannot always influence what the fund will invest their money in. That is why one can often hear comments like: “What a dubious scheme. And what will happen if something happens to this fund in 20 years time? Which is typical for our country. In my opinion, it is easier and more reliable to save up to buy real estate and receive income from it in retirement.”