The price of delay: the future of Russian and Ukrainian pension systems

In The price of delay: the future of Russian and Ukrainian pension systems, CASE expert Oxana Sinyavskaya vehemently refuses to accept the ‘economic determinism’ of some reform opponent and points towards the demographic factors as the causes behind the long-term instability of the pension systems of Russia and Ukraine.  The economic decline of the 1990’s might well explain the precarious situation of the pension system during that period, but the economic recovery in the beginning of the 2000’s wasn’t matched with a substantial improvement of pensioner’s well being. Instead of focusing solely on the economic background, policy makers should realize that certain features of the demographic development of both countries are responsible for the long-term instability of their pension systems. As both countries are faced with increasingly ageing populations, they can no longer profit from their so-called ‘demographic dividends’. Problems are aggravated by a low tax and social contribution compliance, a limited tax base and a very low actual tax pension age. All these factors add up to average pensions that are just slightly higher than the official poverty lines.

These structural causes for the instability of pension systems show why incremental reforms can no longer suffice; the “redecoration” of existing pension systems will not do to solve these problems, the author argues. She pleads for changing the pension systems’ design, such as creating a new contract between generations. She acknowledges that the political struggle for this may be hard, but argues that Ukraine and Russia have the opportunities to finance this transition.            

For more on this topic, please see CASE E-brief 03/2010.