UPDATE: INTERVIEW: Econ ministry sees freezing of Russian pensions bad sign

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MOSCOW, Sep 29 (PRIME) -- The prolongation of a freeze of the accumulative part of Russian pension savings into 2017 will mean abolishment of this system, which is a bad sign for the market and citizens, and the Economic Development Ministry offers a partial unfreeze of the pensions, Deputy Minister Oleg Fomichyov told PRIME in an interview Thursday.

The government froze the accumulative part of pension savings for 2014 and 2015, and used 6% of the payments to pay pensions to the current retirees.

Fomichyov said previously that the ministry had offered to start allocating the 6% payment to form the mandatory part of savings, or at least work out an interim option of starting to transfer 1% of the payment and then gradually increasing it to 6%.

“If the freezing of savings is in fact prolonged for the next year, it will most likely mean abolishment of the mandatory accumulative pension. We will give a signal to the people that the government has failed to fulfill its promises of the accumulative pension. The abolishment also means that pension savings should be either distributed among the pensioners or invested without new contributions,” he said.

“But in this case they will not have any impact on future pensions. Even if these savings remain in accounts of citizens, each of them will receive an additional 150–200 rubles to monthly pensions.

“The Finance Ministry has a conflict of interests inside, as they have to balance the budget on the one hand, but also have to develop markets on the other hand. They see no sources of money if the pensions are unfrozen. They will need about 340 billion rubles next year for that…But we offer to unfreeze 1% of the 6% accumulative part, which is only 60–65 billion rubles next year. We will be able to find the money in the budget even under an austere budget construction,” he said.

Last week, the Finance Ministry and the central bank offered an alternative to the system when each working citizen will be able to allocate part of its salary for forming an individual pension capital. The part may be defined by the citizen or even zeroed.

Fomichyov said that this suggestion looks like the government “has given up in standing for the importance of the mandatory accumulative part of the pension system…But if the decision to freeze savings next year is made, this option is the only viable option as the country cannot do without the accumulative pensions.”

Crises worsen the situation in the pension system, but the accumulative part helps to smooth out crisis impacts in the long run, he said.

The government’s calculations show that the freeze of pension savings in 2017–2019 will allow it to save 1.37 trillion rubles, or 317.5 billion rubles in 2017, 467 billion rubles in 2018 and 532 billion rubles in 2019, he said.

“Anyway, we believe it politically important to show that the freezing theme will start to unfreeze next year. Moreover, over the past two years we have cleaned up the activity of private pension funds – we’ve turned them into joint-stock companies, worked out regulations, introduced a system to guarantee pension savings…It would be unreasonable to just abolish it when it has only begun to work in a more or less normal way right now,” Likhachyov said.

The Economic Development Ministry offers to adjust the unfreeze for 2018–2019 depending on the economic situation of 2017. If it is still tough, the government may unfreeze 3–4% of contributions in 2018 and completely unfreeze the 6% in 2019, he said.

But the Finance Ministry and the central bank assume that citizens will contribute to the new voluntary pension system if the accumulative part is abolished. “We think that this is not the case. Citizens have repeatedly seen that the government is not consistent in fulfilling its obligations, this is why convincing them to form savings in the new system will be tough,” he said.

Formally, the new system is described as spending of a worker that allows him to track and control his contributions. But the same was said about ownership of the accumulative part of pensions, while now they are part of a general distribution system. The new offer is “ideologically” correct, but it should work only as an additional measure to the current system, he said.

UNEMPLOYMENT

The Economic Development Ministry sees unemployment stable, and expects it to fall next year.

“The current situation is actually rather good, and unemployment now is less that we forecasted at the beginning of the year…it stands at 5.6% after the first eight months. So the situation here is rather stable, we have envisaged 5.5 billion rubles in the budget this year id the situation worsens. I think that the 2017 budget will have similar regulations, because we cannot rule out the situation of unemployment rising,” he said.

Now, companies are trying to tackle the situation with non-increase of salaries or even with a cut of payments. The government expects the economic situation to improve next year, but if it worsens and companies start to fire stuff, the government is ready to take measures in the most “depressive” regions, “this will not be the first year we have solved such problems,” Fomichyov added.

(63.9509 rubles – U.S. $1)

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