In Russia, a Dilemma for the Ages

5 MINS READJul 12, 2018 | 09:15 GMT
This photo shows protesters rallying against the Russian government's proposal to raise the country's official retirement age.
(STR/AFP/Getty Images)

Supporters of the Russian Communist Party hold red flags and a poster reading "No pension reform!" at a rally against the pension reform in the Russian Federation in central Simferopol on July 7, 2018.

  • A long-expected but politically controversial plan to raise the retirement age in Russia could be President Vladimir Putin's biggest challenge in his fourth term.
  • The reform has spurred protests across Russia, and demonstrations could grow in size and scope once the World Cup tournament ends and host cities lift their moratoriums on public protests.
  • The government will probably modify the parameters of the reform in the event of protracted protests and public discontent, but Putin will have to balance any concessions against Russia's broader economic challenges.

While the World Cup soccer tournament has drawn the world's attention to Russia, an issue that will affect millions of its citizens has been unfolding at the same time, albeit with less fanfare. For the past month, one of the most sensitive and politically charged matters in the country has been a plan to increase the retirement age. The details of the proposal were announced June 14 by Russian Prime Minister Dmitri Medvedev, and the draft plan stipulates increasing the retirement age in stages beginning in 2019. For men, the age would rise from the current number of 60 to 65 by 2028. For women, it would rise from the current 55 to 63 by 2034.

The Big Picture

In the 2018 Annual Forecast, Stratfor highlighted Russia's prolonged economic stagnation as a key issue for the Kremlin. The announcement of plans to raise the retirement age fits within the government's efforts to stabilize its financial position in the long term, but that increase may come with a significant political price tag.

The pension reforms are part of a long-deliberated plan by the government to cut spending. Raising the retirement age has become a key component of the Kremlin's plan to deal with the economic strain that has followed years of sanctions imposed by the United States and the European Union and the dip in global energy prices. Russia's Pension Fund reportedly has enough assets to cover only 60 percent of its obligations to current pensioners, with the balance of payments coming from the annual government budget. According to a think tank affiliated with the Russian Finance Ministry, the retirement age increase could help reduce the budget transfers needed to prop up the fund by up to 1.7 trillion rubles ($27.3 billion) per year.

Russian Budget Breakdown for 2017

Raising the retirement age, therefore, would allow the government to both increase pensions and tackle inflation. Labor Minister Maxim Topilin has stated that if fewer people were drawing pensions, individual payments could rise as much as 10 percent within a few years. The appointment of reform advocate Alexei Kudrin as chairman of the Russian Accounts Chamber after Putin's inauguration in May demonstrated that the country would become more serious about economic reform in the president's fourth term. Kudrin said that if the current plan to raise the retirement age were fully implemented, pension payments could be increased by as much as 30 percent.

Russian Population Distribution

However, raising the retirement age has always been a controversial topic in Russia, where life expectancy is significantly lower than in most Western countries. According to data from the World Health Organization, male life expectancy there in 2017 was 64.7 and female life expectancy was 76.3. Although the government forecasts that life expectancy will increase to 70 for men and 80 for women by 2034, the fact that the ultimate male retirement age exceeds the current life expectancy has made the reform plan quite unpopular.

Life expectancy after retirement

Protests against the reforms have taken place over the past month across Russia despite the decree that public demonstrations would not be allowed in the 11 World Cup host cities during the tournament. Protests have still occurred in numerous cities that are not match sites. While these protests were initially organized by small, local parties, national opposition leader Alexei Navalny has joined the cause, setting up protests in 20 cities on July 1. Russia's largest labor unions have also spearheaded opposition to the measure. The Federation of Independent Trade Unions has joined in the calls for protest, and the Confederation of Labor started a petition against the pension reforms that has attracted more than 2 million signatures in a matter of a few days.

The demonstrations thus far have been relatively small, generally drawing hundreds of people, and up to a few thousand in cities such as Omsk at their peak. But the protest movement has persisted for nearly a month, and once the World Cup concludes on July 15, demonstrations could again be held in larger cities, including Moscow. That means the rallies could grow in size and scope in the coming weeks as opposition parties across the political spectrum, from the liberal Yabloko to the right-wing Liberal Democratic Party, look to take advantage of the popular discontent.

Russian Population

There is room for movement on the initial proposal. The Cabinet is currently deliberating the legislation for the change. Once it is satisfied, the bill would be subject to a vote by the Duma, then be sent to the president for final approval. Given the sensitivity of the issue, the Kremlin has been careful to distance pension reform from Putin himself; Kremlin spokesman Dmitry Peskov stated on Jun 18 that "The president is not taking part in this discussion" at this stage and that it is “premature to appeal to him." There have also been indications that the government is open to adjusting the bill.

With key regional elections approaching in September, Putin will be wary of galvanizing the opposition. But if the Kremlin revises the bill to ameliorate public discontent, it could cut into the billions of dollars per year in savings that the plan is projected to create. This loss of savings could in turn create greater economic challenges for the government while its long-running standoff with the West continues. Thus, Putin will ultimately have to weigh the economic versus the political costs of the pension reform as he calculates a difficult balancing act between the two.

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