RUSSIA - A top Italian economist who has written a World Bank- sponsored report on Russia has said the 2002 pension reform needed mending and the Putin administration seemed to be “rather aware” of the need for changes.

Professor Elsa Fornero, director of the Turin-based Center for Research on Pensions and Welfare Policies (Cerp), whose ‘Report on Russia’ was prepared with Cerp’s Pier Marco Ferraresi and is currently reviewed by the World Bank declined to discuss in depth the contents of the report, but told IPE the government had “given signs” of understanding the weakness of the system.

Putin’s administration has recently devised a “phasing down” of the public system, requiring that young workers put up to 6% of their 28% contributions to the first pillar into a defined- contribution pension fund of their choice.

These DC funds constitute “a state pension fund” entirely invested in government bonds but workers are given the choice to leave these funds to join private pension funds, which exist as an option but are not active at the moment because of a lack of regulations.

Older workers are barred from the 6% option, but there are “lively debates” in the country as to whether to extend the choice to them as well, Fornero said.

The government is not “keen” on restricting the investment strategies of corporate pension funds which, such as the gas fund, existed before the 2002 reform.

Fornero explained to IPE that as things stand now 28% of workers’ wages go to the first pillar’s pension provisions of which 14% is paid in a flat rate pension, described as “very low and badly indexed”

“People pay in the first_pillar without believing it could constitute a significant part of their pensions in the future”, she said.” On the sustainability point of view, this is clearly a negative sign” she added.

The remaining 14% is used towards an NDC or notional defined contributions pension. “An NDC pension could be low or high depending not only on the worker’s wages but also on the yields attributed to the contributions, which are normally between 1.5 and 2%,” she said.

The economist argued that, although the government was coming to terms with the need of change, there were still issues, such as the lack “ of good governance regulations on supervision of management”, investment and transparency rules.

“We are still at the beginning of a process,” she concluded.

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