Vladimir Milov
Vladimir Milov
Expert of Free Russia Foundation,
Russian opposition politician,
publicist, economist and energy expert
Russian pension reform: a “black swan” for Vladimir Putin?

Russian pension reform aimed at sharply raising the retirement age has all the chances to become a long-anticipated political “black swan” for Vladimir Putin’s government – a mistake that may not necessarily lead to immediate political problems for Putin, but would definitely deliver one of the strongest blows to his grip on power in years. The media has already picked up the decline in Putin’s approval ratings to pre-Crimea annexation levels, and there’s a good reason for it. There was hardly any major element of governmental policy in the past couple of decades that was met with such overwhelming rejection (and “approval” nearing the statistical margin of error, if any) by the society as the proposed “pension reform.”

A recent opinion pollby the Levada Center (dated July 5th, 2018) illustrates explicit rejection of Government-suggested pension reform by Russians—only 7-8% view raising retirement age totally positively or somewhat positively, whereas 89-90% view it somewhat negatively or strongly negatively, with “strongly” negative responses clearly prevailing (70-73%). (The fluctuation in percentage points is explained by the fact that two different questions were asked: one about raising retirement age for men from 60 to 65 and one about raising it for women from 55 to 63. Similar figures are shown by another pollster, FOM (dated June 29th): 80% of the respondents reject raising retirement age, whereas only 6% approve.

Russian opposition is currently actively working the political grassroots in the Russian region, and was behind recent sizable protests in provincial Russian cities. Our interaction with ordinary Russians in Moscow and in the region, suggests that people view the proposed retirement age raise not simply as just another economic reform, but instead as a breach of one of the few available major social guarantees. This guarantee remained untouched for decades, from Stalin’s era through very difficult reforms of 1980s and 1990s. Frankly speaking, there are very few solid social guarantees available to ordinary Russians from the government, and pension is arguably the most fundamental one. Many people build their living strategies after 40 on “holding out until retirement age,” as demand for elderly workers in Russia is quite limited. Vedomosti cites a recent study by the Higher School of Economics which shows that the salaries of Russians peak, on average, at age 45, after which begin to severely decline (by 15-20% compared to peak). This is a stark contrast to developed Western countries with higher retirement ages, where peak salaries are observedbeyond 45 and 59 years. Russian hiring ads traditionally include provisions like “inquiries from candidates aged above 40/45 are not considered.”

The age group which falls under the provisions of current “pension reform” – for whom retirement will be delayed beyond 60 years for men and 55 for women – fall under very high risk of ending up unemployed or forced to take extremely low-wage jobs. Analysts at Raiffeisenbank have calculated that about 660,000 Russians per year will be affected by a raised retirement age, of whom 200,000 risk ending up unemployed – that’s 5% of the total current numberof unemployed Russians.

Yet another problem is poor health of Russians: according to already cited a Levada poll on July 5th—58% of Russians stop working after reaching retirement age due to poor health. According to many independent experts, the majority of Russians around pension age have chronic diseases which complicate their competitiveness in the labor market and their ability to continue to work. See, for instance, Tatiana Maleva and Oksana Sinyavskaya: “Raising retirement age: pro et contra”. The poor health of elderly Russians also devalues the government’s promises of “higher pensions after 65”. Since many peoples’ health sharply deteriorates after 65, they basically have no time to enjoy their retirement and instead begin to fight for physical survival. The Russian government is aiming to take away these relatively smooth first five years of pension

In this regard, raising retirement age as proposed by the Russian Government puts tens of millions of Russians in the risk zone for the upcoming decade, potentially driving unemployment higher and creating millions of “new poor” people who will not be in demand by the labor market and will have a very difficult time living through to reach the new, raised retirement age.

This perspective is completely understood by the Russians in the risk zone. According to our surveys, about one fifth of the attendees of protest gatherings against raising the retirement age in provincial Russian cities in the past weeks were completely new people who have never attended opposition rallies before. These people have very strong feelings about what they believe to be dishonesty and betrayal by the authorities:

  1. There was not a word about such swift raising of retirement age during the “presidential elections” campaign. In fact, Putin and many top ruling party officials have categorically rejected such a perspective many times on record in the previous years;
  2. As said above, the current retirement age was one of the very few solid social guarantees by the government surviving decades of changing policies, and people truly believed in it and built their basic living strategies upon it;
  3. Unlike other countries where retirement age has been raised before, there was never an open debate in society about it—instead, the government recently switched on its full-throttle propaganda machine spreading ridiculous and poorly crafted messages that “working longer is great and everyone will just be happier.” This clearly heightens the negative reception of the reform. Instead, critical voices are suppressed. This atmosphere does not help build trust to suggested measures, to say the least;
  4. Aggressive governmental propaganda is so out of touch with reality: nice looking TV hosts in designer clothes discussing how nice it is to work after 60, whereas the bitter reality for many Russians at that age is poor health, enormous medical costs, and the total inability to find a job.

Also, it’s worth noting that the pro-reform message is extremely weak in terms of its argument. The comparison with other countries simply doesn’t work due to poorer health and quality of life in Russia. Talk about the “inevitability” of raising the retirement age due to pension fund deficits hardly sells itself on the background of fresh news about record surplus of the federal budget, which is expected to hit over 1 trillion rubles this year due to rising oil prices.  According to Minfin, the government’s National Wealth Fund reached $77.1 billion on July 1st. That amount alone is sufficient to close down the debate on raising retirement age for at least a decade.

So, our feedback from the Russian region tells us that this time it’s serious. Relations between the public and Vladimir Putin’s government are broken. Yes, Putin always has the option of interfering and softening the proposed scale of raising retirement age, but it seems unlikely that he will completely cancel the reform after decades of discussion. Key political decisions to proceed with the raise have already been taken, and any such softening gestures will not be able to restore the trust of those people who lost it after the pension reform was announced in June.

Of course, the retirement age factor alone can’t radically transform the Russian political landscape. Russian society in many ways is traditionally driven by inertia and adaptation rather than revolt, as people have very limited historic experience of democratic governance. Many Russians believe that their lone voice can’t make a difference, but postponing the retirement age – a blatant breach of an important provision of informal social contract – will definitely be one of the game changers that will ultimately contribute to ruining trust in Vladimir Putin and his system. It is already becoming one.

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